Thursday, May 3, 2012

>SIEMENS LIMITED: Projects in mobility KAHRAAMA, Essar Construction, solar thermal & Torrent Power (Earnings Review Q4FY12)

New orders fall, Adj PAT 46% below BofAMLe; Maintain UPF

2Q12 only optically in line, Revenue disconnect
Siemens (SIEM) 2Q12 Adj PAT of Rs1.63bn is 46% lower than BofAMLe. Revenues of Rs38bn beat BofAMLe by 11%, up 22% YoY. However, results include a net write back of Rs2.1bn (PBT), which we believe led to higher revenues and in-line Rep PAT Rs3bn. 1H12 order inflows declined 36% YoY (adj -27%) due to high base, lower project orders, but short cycle & SMART products drove base orders. We maintain our Underperform rating on: 1) reduced revenue visibility as orders decline from power gen, T&D and process sectors; 2) lower FY12-14E margins due to new product launches; and 3) modest 8% earnings CAGR in FY12-14E, and declining RoEs.

Mobility and new products drive revenues
We believe a) projects in mobility (Gurgaon Rs7-8bn, Chennai Rs6bn, & Kolkata Rs1.6bn), b) power (KAHRAAMA Rs25bn, Essar Const, 200MW solar thermal &  Torrent Power Rs15bn), and c) launch of new low cost products in 1Q12, were major revenue drivers in our view in absence of mgmt commentary on the impact of the write back on revenue and EBITDA.

Margins lower on comp, cost push, entry pricing & losses
Despite the write back EBITDA margins contracted 130bp YoY (13%) on price competition in T&D, cost push in industry projects and entry pricing on SMART products. Segmentally, Industry (-600bp), Healthcare (loss) and Infra &cities (-100bp) were margin drags. Energy was positively impacted due to the write back.

We are 6% & 14% lower than consensus, expect downgrades
We maintain our FY12/13/14 earnings ests despite lower than anticipated results in 1H, as SIEM aggressively provides for contingencies (3-3.5% of rev) while executing large orders. We estimate KAHRAAMA & Gurgaon metro to be mostly complete in FY12, so expect further write backs. We do not change order inflow & revenue ests as we build in for contribution from VAI and also Rs10bn order from Qatar. However, our FY12/13 ests are 6% and 14% lower than Street. Consensus has lowered ests by 13/10% in past qtr; we expect further earnings downgrades.