Siemens: Why analysts see upside capped for this stock

Siemens, Siemens shares, Siemens share price, Siemens share price target, Siemens stock, Siemens news

NEW DELHI:

Siemens

‘ September quarter results disappointed the Street, with analysts saying the stock did not account for margin pressure in the near future, even though it has re-rated sharply in anticipation of a capex recovery.

The September quarter saw revenues of the company meeting the Street expectations but weak margins led to an earnings miss. Analysts are largely neutral on the stock, with a median estimate of 24 analysts suggesting no upside for the stock.

ICICI Securities said green shoots were visible in sectors like pharma, food & beverage and data centres, which would support base orders. However, given the cost pressures and rich valuations, it maintained a hold on the stock

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Siemens, a subsidiary of Siemens AG, offers diverse products and services solutions in power generation, transmission and distribution, automation and drives, industrial and digital solutions. The company, which follows the October-September financial year cycle, saw its consolidated net profit falling 2.6 per cent to Rs 321.6 crore for the quarter, mainly due to a rise in raw material and logistics costs. Ebitda margin declined by 220 basis points YoY to 10.7 per cent.

Total revenue rose to Rs 4,358.3 crore from Rs 3,609.3 crore a year ago. New orders grew 4.9 per cent to Rs 3,378 crore in September 2021 against Rs 3,220 crore in the year-ago quarter. The order backlog stood at an all-time high of Rs 13,520 crore.

Nomura has valued Siemens at 51 times FY23 EPS of Rs 45.75, with an implied PE of 60 times (excluding the gas & power business), to arrive at a target of Rs 2,355. The brokerage said an upside for this stock was possible if there was a sharp rise in the industrial capex. A rise in commodity prices and slower pace of industry automation and digitalisation were the downside risks. Nomura said it preferred Honeywell Automation to Siemens.

Edelweiss said Siemens’ leadership team has mastered the art of managing operating profit margin (OPM) volatility while keeping balance sheet quality at fore, both of which reflect in its annual results. “New order inflow commentary is in sync with peers like ABB, Thermax on the private sector and L&T, etc, on the infra outlook. As Siemens enjoys a better capex cycle going ahead, what remains key is how it plays and manages the competitive dynamics across conventional and new segments,” Edelweiss said.

Also, scale up in C&S (C&S Electric), where Siemens invested a major portion of its cash beyond the domestic market, remains key, it said, adding that the overall pace of new orders and revenues might stay healthy with better Ebitda growth.

ICICI Securities said the company’s order book remained strong at Rs 13,500, providing growth visibility. “Order pipeline is strong as the private sector is increasingly investing in automation and efficiency-related solutions. Factoring-in the better execution in Q4FY21, we marginally raise our earnings estimates by 4.4 per cent and 4.5 per cent for FY22 and FY23, respectively,” it said, while maintaining a hold on the stock with a revised target of Rs 2,251 from Rs 2,138 earlier.

Motilal Oswal Securities said the company needed to consistently surprise on order intake to meet revenue growth expectations. “We broadly maintain our estimates and remain neutral with a target of Rs 2,065 per share.”

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