Thursday, August 2, 2012


Results in-line with expectations
PI Industries reported Revenue of Rs 239.2 cr for the quarter, a growth of 15.8% YoY. Custom Synthesis Manufacturing (CSM) continued to outperform, with 55% YoY volume growth. Agri Inputs witnessed volume de-growth on account of adverse agro-climatic conditions and a high base effect. The volume de-growth was compensated by recently taken price hikes, leading to flattish growth for the Agri business.

Management has maintained its growth outlook of 30% for FY13 on the back of planned new product launches, higher off-take from existing products and scaling up of CSM business & commissioning of Jambusar plant. With monsoon deficit improving and sowing picking up, coupled with new product launched and existing products doing well, Q2 FY13 is expected to perform well.

Key Highlights
 Margins improved on account of improving product mix and higher operating leverage. EBITDA margins were 20.6% in the quarter as compared to 19.8% in Q1FY12 and 15.9% in Q4FY12. Management expects margins to improve by about 100 bps in FY13 over FY12.

 CSM continues to do well, with the CSM order book standing at ~$310 mn i.e. 4.4 times of FY12 CSM revenues, providing revenue visibility for the segment. Further scaling up of exports (CSM) business to happen via (a) higher volumes of newly commercialized products (b) additional facilities via Jambusar SEZ which is expected to be commissioned in Q2 FY13.

 Good traction is expected from planned introduction of new products. The company has launched one new in-licensed product towards the end of the quarter. It has planned three more product launches in FY13. Together these products would drive growth for the company’s domestic business.

 On account of weak monsoon, the company is cautious on pushing of inventory into the channel and is focused on working capital management.

Valuation & Recommendation
We believe that with factors like being a recognized player in the CSM segment, sustained order book with increasing margins and low per-capita pesticides consumption that provides opportunities for growth, PI Industries has a good future. At CMP, the stock trades at attractive valuations of 10.4x FY13E and 7.5x FY14E. Based on FY13E EPS of Rs 46.6, we have a target price of Rs 605, a potential upside of 26% from current levels. We continue to maintain our BUY rating on the stock.


>JAGRAN PRAKASHAN: Nai Dunia acquisition

Strong ad revenue growth

Jagran Prakashan posted the best ad revenue growth in the print sector with a strong 8% growth which helped the company post 4.2% YoY growth in topline. Operating profit was down by mere 4% on the back of marginal increase in employee expenses and mere 14.7% increase in RM cost as the company put use of imported newsprint and reduced pagination. Strong traction in Nai Dunia and Mid Day will help the company post better than industry numbers. Maintain BUY.
Q1FY13 results broadly in-line: Jagran Prakashan posted 4.2% topline growth in Q1FY13 to Rs3175mn on the back of strong 8% advertising growth. Circulation growth was at 10%. Operating profit was down 3.9% on the back of 210bps margin compression on the back of higher RM cost. PAT was high by 12% as the company did not pay any tax during the quarter due to accumulated loss on the back of Nai Dunia acquisition.
Strong ad revenue growth: The company posted strong 8% YoY ad revenue growth which was the highest in the industry compared to competitors such as HT Media and DB Corp which posted -3% and 1% growth respectively. Sectors such as FMCG and entertainment have
grown while white goods, auto and education have shown a decline. The share of national ads have declined from 43% to 40%, though they have grown compared to the industry which has seen a steep decline in national advertisements. Flanking papers like I-next and City plus
contributed 1.5% of this growth. Their local billing grew by 69% and 48% respectively. The management remained confident that it will grow more than 8% for FY13.

Nai Dunia losses to reduce: The company is gong to merge Nai Dunia operations with itself which would help save ~Rs750mn as tax benefits. During the quarter it was able to garner 27% incremental revenue from national markets while newsprint cost fell by 12% which helped it reduce PAT losses to Rs15mn. For the full year the company has guided losses of Rs100mn against Rs250mn in FY12.

Mid-Day business on track: Mid-Day has shown 8% growth in revenues on the back of strong traction in Inquilab and Gujarati Mid-Day. Readership too has grown by 18% which would incrementally benefit in advertising revenues going forward. Losses have also been under control for the company.
Estimates lowered; Maintain BUY: We have cut our FY13/FY14 estimates on back of lower advertising revenues coupled with lower margins. FY13E PAT is higher on back of tax benefits. The stock is currently trading at 10.2x and 11.5x FY13E and FY14E respectively. We value the company at 14x FY14E with our target price of Rs107 and maintain BUY rating on the


>MARUTI SUZUKI: Impact of Manesar issue

Manesar issue to impact FY13 earnings; Maintain Buy

Maruti Suzuki’s (MSIL) 1QFY13 operating results were marginally below our expectations. Despite EBITDA margins standing lower at 7.3% (our est. 7.7%), absolute EBITDA was higher by 1% due to better than expected realization led revenue growth. Adjusted PAT stood at Rs.4.2bn compared to our estimate of Rs.5.1bn due to lower than expected other income. On a conservative side, we are factoring in production loss of 2months (i.e 50,000 units) from its Manesar plant for FY13E. We are lowering our EPS estimates for FY13E by 26% to factor in expected production loss at Manesar, lower operating performance in 2QFY13 due to lower than expected contribution from Diesel models and higher royalty outgo. However, if the production loss is higher than our estimate, we will re-visit our estimates and rating on the stock. We continue to remain positive on the stock and maintain our Buy rating with a revised target price of Rs.1,345.

Realization led revenue growth: Revenues stood at Rs.108bn compared to our estimate of Rs.102bn. The increase in NSR was higher than our expectations (up 11.6% QoQ and 20.4% YoY) resulting in better than expected revenue growth by 6%. Higher realization was expected due to higher contribution from the Diesel portfolio for its existing product line and from Ertiga (Ertiga accounted for 7% of domestic sales in 1QFY13). Also, as we have been highlighting, discounts stood at Rs.11,500 compared to Rs.13,500 in
4QFY12, lower by 15%.

Management interaction: Key highlights: 1) Diesel penetration to overall domestic sales stood at 38% compared to 27-28% in 4QFY12, thanks to higher contribution from Ertiga. For the overall passenger car industry, diesel penetration stood higher at 55% for 1QFY13. 2.) Discount for the quarter, as indicated stood lower by 15% QoQ to Rs.11,500 in 1QFY13 compared to Rs.13,500 for 4QFY12. 3.) Export revenues stood at Rs.11bn (10% of revenues) and export realization for the quarter moved up by 5.4% 4.) Domestic realization increased by 12.4% due to lower discount and more favorable product mix 5.) Overall market share in the domestic passenger car industry for MSIL in 1QFY13 stood at 44.6% compared to 44.2% in 4QFY12, helped by strong sales of Ertiga. Ertiga diesel continued to have a waiting period of
6 -7 months.


>TVS Motor Company

Volumes to remain under pressure; We Retain Sell

TVS Motor Company reported better-than-expected performance for 1QFY13, as higher- than-expected net sales and lower tax outgo fuelled earnings growth which beat our estimate by 16%. Net sales for the quarter were up by ~ Rs2bn on account of: (1) Revised volumes of 5,47,000 units, which included ~30,000 units despatched to the company’s distribution arm, which were over and above the monthly sales which the company reported, (2) Rise in realisation due to price hikes. On the profitability front, the EBITDA margin for the quarter was down 80bps YoY and 20bps QoQ to 5.9%, largely on account of the rise in input costs and employee costs, which increased 37bps and 21bps QoQ, respectively. However, the EBITDA margin of 5.9% was in line with our estimate of 6.0%. Reported PAT of Rs511mn was more than our estimate of Rs439mn, purely on account of higher net sales and lower tax outgo (22.7% versus our expectation of 25.0%). In the wake of lower exports and domestic sales in 1QFY13, we have revised our assumptions. We have cut our volume/sales/earnings for FY13E by 3.7%/3.5%/5.1% and by 3.2%/2.9%/4.1% for FY14E, respectively. We retain our Sell rating on the stock with a revised target price of Rs36 from Rs38 earlier (8.5x FY14E EPS of Rs4.3, adjusted for losses of Indonesian arm). 

Net sales up due to revised volume: Net sales at Rs18.2bn were 13% ahead of our estimate on account of revised volume and the rise in realisation. For the quarter, the company reported monthly volume of 5.47,000 units which was ~30,000 higher than the numbers reported earlier, with the variance mainly on account of 30,000 units dispatched to the distribution. Apart from this, the company went for a price hike in 1QFY13 , which resulted in higher realisation. The company also went for another price hike in July 2012. The price hikes in 1QFY13 and 2QFY13 combined work out to ~1.2%. 

EBITDA margin in line with estimate: EBITDA margin for the quarter was down 80bps YoY and 20bps QoQ at 5.9%, in line with our estimate of 6.0%. The drop in EBITDA margin was largely on account of the rise in raw material and employee costs, which increased 37bps and 21bps QoQ, respectively. Absolute EBITDA at Rs1,075mn was 11% higher than our estimate due to higher net sales. PAT driven by higher sales and lower tax outgo: The company reported PAT of Rs511mn versus our expectation of Rs439mn, with the variance of 16% largely on account of higher net sales and lower tax outgo. Tax rate at 22.7% was 230bps below our estimate of 25.0%. 

We trim earnings estimates for FY13E/FY14E, retain Sell rating: We have cut our volume/sales/earnings estimates for FY13E by 3.7%/3.5%/5.1% and by 3.2%/2.9%/4.1% for FY14E to factor in slowing domestic two-wheeler demand and exports weakening in 1QFY13. Due to challenging environment and reduced earnings visibility we retain our Sell rating on the stock with a revised target price of Rs36 (8.5x FY14E EPS of Rs4.3, adjusted for losses of Indonesian arm)

We cut our volume, earnings estimates
We have cut our standalone earnings estimates for FY13E/FY14E in the wake of slowing demand for two- wheelers. Further, exports in 1QFY13 de-grew by 15.4% YoY following lower exports to Sri Lanka. We have cut our export estimates for FY13E/FY14E by 15.2%/7.6% to 0.26mn and 0.31mn units, respectively. In the domestic market, competition in the two-wheeler segment intensified further with the launch of new products by competitors; the company has also planned two new launches in FY13 - launch of a new motorcycle in 2QFY13 and a scooter in 2HFY13. Following intense competition, lower exports and slowing domestic demand, we have cut our volume estimates for FY13E/FY14E by 3.7%/3.2%, respectively. Due to the cut in our volume estimates, our revised earnings estimates are lower by 5.1%/4.1% for FY13E/FY14E, respectively. We retain our Sell rating on the stock with a revised target price of Rs36 (8.5x FY14E EPS of Rs 4.3, adjusted for losses of Indonesian arm ) from Rs38 earlier.

Key highlights of our interaction with the company’s management
 Currently, three-wheeler exports to Sri Lanka are less than 200 units per month.
 Company has exported 3,000 two-wheelers to Sri Lanka during 1QFY13.
 It has not gone for any price cuts in Sri Lanka so far.
 Company has hiked product prices in 1QFY13 and also in July 2012, totally amounting to 1.2%.
 It will launch a new motorcycle in 2QFY12 and a scooter in 2HFY13.
 1QFY13 sales numbers reported in the company’s press release included sales of 538,000 two-wheelers and 9,200 three-wheelers.
 The management has given capex guidance of Rs1.25bn-Rs1.5bn for FY13E.
 Losses of the Indonesian arm are coming down.
 Investment in subsidiaries will be minimal in FY13 as the investment cycle is over.
 The management expects exports to revive in 2HFY13.



Healthy core performance, asset quality slips

PNB reported healthy core earnings performance in Q1FY13 with PPP coming in 4% above our estimates, though asset quality disappointed forcing PAT marginally below our expectations. Slippages were high at 3.8% and restructured loans inched up to 8.7% of loans – which collectively kept the provisioning cost high at ~1.4%. While the troubled SEB and aviation exposures have been restructured, we still see asset quality concerns persisting due to the challenging macro. We suggest accumulate stance on the stock led by cheap valuations.

Asset quality deterioration...: Asset quality matrices for PNB continued to deteriorate further during the quarter with 1) higher delinquency rate of 3.8% on annualised basis 2) inching up of %GNPA by ~35bps to 3.3% 3) further increase in restructured assets to 8.7% of advances. Given the large outstanding restructured book and exposure to agri and SME, we have factored in stiff credit cost assumptions at 1.3% for FY13 vs 1% for FY12.

…mars an otherwise healthy core performance: Despite the marginally lower bottomline, the core performance of the bank during Q1FY13 was healthy with a 10 bps QoQ expansion in NIM and higher than estimated other income. The NIM expansion can be traced to higher lending and investment yields during the quarter. This, along with a healthy 21.2% YoY credit growth, led to a respectable 18.6% YoY growth in NII.

Loan growth healthy: Loan portfolio expanded 21.2% YoY with clear preference towards agriculture (30.6% YoY) and retail (21.2% YoY) segments. From an industry perspective, incremental disbursement remained skewed towards the infra sector as past sanctions come up for disbursals. Meanwhile, on the deposit front, CASA share eroded by 80 bps QoQ to 34.6%. While an above industry credit growth is encouraging, it is a risky strategy to aggressively build up the loan book in adverse economic scenario and hence we remain cautious on asset quality.

Non-interest income surprises positively: Non-interest income surprised positively during the quarter led by strong treasury gains (YoY). However, the core fee income growth was weak at 2% YoY. The TPD revenue stream is likely to gain more traction as PNB has begun selling insurance products of Metlife Insurance (PNB now holds 30% in the company).

Accumulate on cheap valuations: PNB continues to report a weakening asset quality matrix with pressures likely to continue for a few more quarters led by incremental restructuring and high slippage rate. However, our stiff assumptions (credit cost and slippage rate) and lowered valuation multiple (1x FY14E) amply factors in asset quality challenges and resulting pressure on return ratios. Current valuation seems reasonable at 0.9x FY14E PABV considering RoE of ~18% for FY13E and FY14E. Hence we recommend investors to accumulate the stock from a 12-15 month perspective given that asset quality concerns should lead to underperform in near term. Failure of monsoon in northern India and resulting risks to agri loan book is key risk to our stance.


>ONGC: Government likely to take up policy measures to tackle subsidies

  • ONGC’s consolidated production to fare better as its IOR/EOR initiatives and marginal fields development bear fruit. Expect 6% CAGR over FY12-15E to 73mtoe
  • Declining crude oil price scenario augurs well for ONGC as it has a positive impact on its oil net realization. Expect ONGC’s net realizations to improve to US$55.7/bbl in FY13 and US$58.5/bbl in FY14
  • Current government finances point towards fuel price hikes as the only solution. Declining oil prices to further aid policy reforms to tackle the subsidy issue
  • Given its improving production profile, lower oil prices and possibility of price hikes, we recommend Accumulate rating for ONGC with a PT of Rs327

Consolidated production to improve at 6% CAGR over FY12-15E
ONGC is expected to have a consolidated production growth of 6% CAGR over FY12-15E in oil and gas over 2012-15 to 73mtoe on the back of new field development efforts, IOR/EOR efforts on existing domestic fields and increase in oil production from Rajasthan JV field. This is in contrast to its flat production at 61mtoe during FY07-12.

ONGC to realize higher oil prices from decline in crude oil
The current decline in crude oil prices is beneficial for ONGC as its realization on crude oil goes up. We have factored net realization of US$56/58.5bbl in FY13/14 as against US$54.7/bbl for FY12. At 40% share of upstream share in subsidies, ONGC’s net realization on crude oil ranges between US$64/bbl-US$53/bbl for a crude oil price range of US$80/bbl-US$120/bbl

Government likely to take up policy measures to tackle subsidies
Given the precarious financial status of the government, it has no choice but to take up policy measures to tackle subsidy issue. The recent decline in crude oil prices provides government an opportunity to bring in favorable policy measures to tackle subsidies. We expect oil prices to remain subdued ahead on the back of weak oil demand fundamentals globally. Any price hike will have a substantial impact on ONGC and provide valuation upsides.

We initiate coverage on ONGC with Accumulate rating given its production growth ahead and likely government action on the fuel subsidy front. Our target price for ONGC works out to Rs327/share, with the standalone business contributing Rs224/share at 4xEV/EBIDTA and OVL, Rs68/share at 5xEV/EBIDTA on FY14 estimates. The balance contribution comes from MRPL (Rs9/share) and cash and investments of Rs26/share. ONGC also offers an attractive dividend yield of ~3.5%.


>Bajaj Electricals Ltd- Q1FY13 Result Update

􀂉 In Q1FY13, Bajaj Electricals Ltd (BJE) has reported a revenue of `6661.9 Mn registering a growth of 22.4% on Y-o-Y basis but it has shown a substantial decline of 37% on sequential basis mainly on account of decline in lighting and engineering & project business. During the quarter, Consumer durable business has grown by 28.8% , lighting business has grown by 19.6% and engineering & project business by mere 8.4% compared to same quarter previous year.

􀂉 BJE’s EBITDA margins in Q1FY13 stood at 5.2%, which declined by 40 bps on Y-o-Y basis and by 290bps on Q-o-Q basis, mainly due to shrinking margin of Engineering & project segment. In Q1FY13, net profit margin of the company stood at mere 1.8% , registering a decline of 20bps on Y-o-Y basis, whereas it has declined by 280 bps on Q-o-Q basis. The decline in the margins is mainly attributed to operating losses in engineering & project business where the company is finding it difficult to close the ongoing projects and to control increasing capital employed.

􀂉 Consumer Durables business which contributed more than half (58.6%) of total revenue
in Q1FY13, has grown by 28.8% on Y-o-Y basis but declined sharply by 12% on sequential
basis. However the EBITDA margin for consumer durables had declined by 120 bps on Y-o-
Y basis to 8 4%. The decline in margins was due to fans segment which has pulled down the profitability performance largely on account of increasing commodity prices and due to
Forex losses on account of imported products. Under consumer durable business; appliances segment grown by 32%, Morphy Richards grown by 29% and fans segment
grown by 13% in Q1FY13 on Y-o-Y basis.

􀂉 Engineering & Project (E&P) business had a dull quarter with `70.5 mn operating loss.
Engineering & project business order book stands at `4500 mn as on QFY13 and is L1 in projects worth `7000 mn. The order book includes orders worth `2540 mn for Special projects, `1460 mn for TLT (Transmission Line Towers) and `6000 mn for High-mast. The company is trying to close various sites which were in-complete and hoping to close significant projects in coming quarters, the company has also mentioned that the next few quarters are going to be critical for E&P segment.

Valuation & Recommendation:

At CMP of `173.4/ share, BJE is currently trading at P/E Multiple of 10.3x on FY13E EPS of `16.8. We maintain “HOLD” on BJE with target price of `202/ share (12x P/E on FY13 EPS of `16.8)


>JYOTHY LABORATORIES: Growth in Maxo & Exo

 Revenue recognition in-line with expectations: Jyothy Labs (JLL) recorded standalone revenue growth of 70.6% yoy aided by 92% yoy growth in Exo and 105% yoy growth in Maxo. The fantastic growth numbers for Maxo has to be viewed in context to last year’s low base (~7% trader margin, which was discontinued in Maxo coil category last year, has been reinstated). Exo’s growth is primarily on account of increase in market share with ~90% revenue contribution from institutional sales, resulting in volume growth increase (volume market share for Exo has increased from 21% in June 2011 to 25.6% in June 2012 in South India). The cash cow, Ujala franchise registered revenue growth of 25% yoy.

 New Management team on board; re-launches Pril and Margo: On yoy basis, JLL reported margin expansion of 302bp, aided by decrease in staff cost (down 531bp), and other expenses (down 475bp). We believe, margin comparison for JLL will be relevant on qoq basis owing to–(1) Majority of Henkel staff were laid off in order to make the two companies (Henkel acquired and JLL) leaner for smooth integration, (2) new management team has been recruited to facilitate revenue recognition from Henkel’s acquired brands and (3) JLL management has committed to higher advertisement and promotional spends for all its brands. Hence, sequentially JLL has reported a margin contraction of 487bp on account of higher staff cost (up 362bp; there is also a provision of ~Rs5cr as write off cost for Karikal plant employees) and higher A&P spends (up 315bp).

Yoy comparison of earnings not very relevant for analysis purpose: JLL has taken loan from Axis bank for the purpose of paying off Henkel’s debt. As a result, JLL charges interest income from Henkel (reported in other income; ~Rs15cr) and pays off interest expense from its own books. This is not visible on yoy numbers for JLL, however, one can see this reporting in the sequential numbers. Hence, on qoq basis, earnings came in lower by 36.9% primarily on account of trickle-down effect of margin contraction.

Outlook and Valuation
We value the company on a consolidated level. In view of the weak monsoons directly affecting the revenue for Maxo, we have tweaked our revenue estimates downwards by ~1% over FY2013-14E. With JLL management taking price hikes across its portfolio (~7% weighted average price hike taken in 4QFY2012 and ~10% price hike taken across Henkel portfolio in April 2012) and focusing on increasing sales of Pril, Fa deodorant and Henko detergent, we believe Henkel will be a primary incremental revenue driver for JLL going ahead. We factor revenue of ~Rs448cr in FY2013E and ~Rs484cr in FY2014E from Henkel into our numbers. The laundry business of the company, JFSL, is also performing above expectations; we factor-in revenue of Rs49cr in FY2013E and Rs57cr in FY2014E. We value the stock at a discount to its peers (higher rural led sales, which may soften on account of high inflation and low monsoon) and recommend a Reduce on the stock with a target price of Rs110.

Risks to the view
 Faster and successful integration of Henkel holds an upside to our estimates
 Debt repayment and stabilized core business of JLL will warrant a re–rating of the stock.


>ACC: Q2CY12 Results

Stellar performance, Upgrade to Neutral

ACC’s Q2CY12 result was sharply above estimates driven by strong realization increase of 7.9% QoQ against our expectation of 2.5%. EBITDA margin was at 23.4% against est. 20.5% driven by better-than-expected realization and adjusted profit was at Rs4.2bn vs. est. Rs3.3bn. Going forward, with our expectation of demand improvement and an uptick in utilization rate of the industry, we believe manufacturers will be able to pass on the increase in input costs to consumers and will be able to maintain operating margins. In Apr-May ’12, the industry recorded despatches growth of 9.6% against 0% in the same period last year. We expect cement demand to grow at 8-9% in FY13E and FY14E. Over the last one year, cement prices have sustained at higher levels and the industry ensured price hikes despite lower utilization
rates which compensated for increase in operating costs (freight, energy and raw material) and resulted in expansion of operating margins. Our interaction with dealers indicate ~2.5% M-o-M increase in retail price in July which is likely to protect the margins in the coming quarter even if the monsoon peaks (historically, we have seen a correction in cement prices during the monsoons). We have revised our realization assumption by 4.8%/5.2% for CY12E and CY13E to factor in improvement in retail prices, which resulted in EPS upgrade of 25.9%/24.9% for CY12E/CY13E. Consequently, we revise our rating on the Stock from Sell to Neutral with a price target of Rs1,413, upside of 12% from its CMP.

Steep realization increase results in higher profits and helps to beat estimates: Steep increase in realization (up 13.3% YoY against est. 7.7% YoY increase) resulted in 15.6% YoY increase in Revenues to Rs27.8bn (vs. est. Rs26.5bn). Cement sales volume was up 2% YoY to 6.05mt. Higher realization and sales volume led to 18.3% YoY growth in EBITDA to Rs6.5bn.

Better realization negates the benefit of input cost hike and results in margins expansion: Operating costs increased 12.5% YoY led by 9.9% YoY increase in raw material costs, 9.7% YoY increase in employee costs and 19.2% YoY increase in freight costs due to the increase in railway freight rates in March ’12. Despite 12.5% increase in op. costs, op. margin expanded 53bps YoY to 23.4% primarily due to 133% YoY increase in realization. Op. profit/tonne increased 15.9% YoY (and 17.3% QoQ) to Rs1,076/tonne.

Upgrade earnings estimates due to higher realizations: Cement prices are on an increasing trend and our dealers’ interaction suggests ~2.5% M-o-M increase in pan-India average retail prices. We have revised our realization assumption by 4.8%/5.2% for CY12E and CY13E to factor in improvement in retail prices, which resulted in EPS upgrade of 25.9%/24.9% for CY12E/CY13E.

Upgrade to Neutral on improving valuations: Cement manufacturers have been to able to pass on the rising input costs and maintain/improve their op. margins over the last one year despite lower utilization rates. With our expectation of improvement in utilization rates over the next two years, we do not see any risk to pricing power of manufacturers which will result in improved earnings scenario. At the CMP, the stock trades at 13.9x CY13E EPS, 7.6x EV/EBITDA and EV/tonne of US$143.1. We upgrade our rating on the stock to Neutral from Sell earlier with a revised price target of Rs1,413 (earlier: Rs1,030), upside of 12% from its CMP.


>SIEMENS AG: Implications for Siemens India

New orders slide

Key highlight of Siemens Q3FY12 results was the 23% decline in its order inflow which was much steeper than expected as customers, wary of European debt crisis, increasingly refrained from making investments. The market environment was less favorable in the third quarter, particularly for Siemens’ industrial short‐cycle businesses. Revenue rose 10% YoY to €19.542bn. The management indicated that the deteriorating environment poses difficult task to achieve their FY12 guidance.

Implications for Siemens India
Order intake from India (all Siemens entities‐India) was up 7% in EUR terms at EUR633mn; adjusted for currency, it was a growth of 16 % YoY. We believe, Siemens India’s order intake could be around INR27bn‐29 bn (up 16 %, YoY) given that largely ~70 % of total business for the parent comes from the listed entity (Siemens India). Order intake from Emerging Markets (India China, Brazil etc) grew 5% YoY, led by strong inflows from India while China order intake declined 5% YoY.

Absence of big ticket size, short cycle business orders thin inflow
Siemens posted a 23% drop in quarterly new orders, steeper than expected, as customers, wary of Europe's debt crisis, increasingly refrained from making investments. The iIndustry sector ‐ the bread and butter of Siemens ‐ has been the worst‐hit among its four segments as demand declined for a range of products including electric drive systems and control machinery for factory assembly lines and amusement park rides. Orders came in at €17.770bn, 23% below the prior‐year period which included a €3.7bn order for trains in
Germany and a substantially higher volume from large orders in Energy. Growth in new order intake for Siemens AG got impacted by a sharp dip in key market of Europe (down 38 % YoY) and Americas (down 19 % YoY). The book‐to‐bill ratio for the quarter was 0.91, and the order backlog was €100bn.

Outlook: Challenging, FY12 guidance seems too ambitious for now
The company has seen growing reluctance among its customers regarding capital expenditures besides strong economic headwinds, especially in its industrial short‐cycle businesses. Siemens expects a moderate organic revenue growth compared to fiscal 2011, and orders exceeding revenues for a book‐to‐bill above 1. Due to lower than expected earnings in its industrial short cycle business and deteriorating environment, it will be very challenging and over ambitious for the company to achieve its guidance of €5.4bn income for FY12.

Other Key Highlights

Higher revenue in all Sectors and regions
All Sectors reported revenue growth in the third quarter, benefiting from currency translation effects. Energy’s growth was supported by conversion from its strong order backlog. Infrastructure & Cities and Industry generated moderate increases. The Americas and Asia, Australia saw double‐digit revenue growth, and the region comprising Europe, the Commonwealth of Independent States, Africa and the Middle East (Europe/CAME) showed a moderate increase. Emerging markets on a global basis grew 8% year‐over‐year, and accounted for €6.329 billion, or 32%, of total revenue for the quarter.

Substantially lower volume from large orders
Both Infrastructure & Cities and Energy saw orders fall due to lower volume from large orders compared to a year earlier. The drop in large order volume YoY was most evident in Europe/CAME and the Americas. Asia, Australia posted moderate growth. Globally, orders grew 5% in emerging markets and accounted for €6.708 billion, or 38%, of total orders for the quarter.