We maintain REDUCE on Siemens (NS: SIEM ) India Ltd. (SIL) and roll forward TP (Rs 1,197) to Sep-22 (35x). The sharp decline in revenues across the businesses is primarily due to (1) 1.5 months of COVID-led shutdown, (2) intermittent local lockdowns, (3) ensuring supply chain disruptions, and (4) labor migration issues. With Gas & Power (G&P) business hived off at the parent (Siemens AG (DE: SIEGn )) level in the form of Siemens Energy, the latter entity will now hold 24% in SIL. New opportunities in digitalization are gaining traction as clients cut capex and look towards increasing productivity through automation. SIL is also looking at enhancing capabilities across the EV Infra value chain.
Weak financial performance: SIL delivered a revenue miss of 23% (Rs 13.2bn, -59%/-53% YoY/QoQ). EBITDA margin came at (0.7)%. SIL has quantified the impact of 1.5 months shutdown in terms of Rs 2.3bn additional expenses incurred due to: (1) under-recovery of fixed costs, (2) increased costs of installation due to supply chain disruptions, and (3) additional spending on higher health & hygiene standards. On the positive side, the rationalization of operating and employee expenses led to EBITDA/APAT beat of Rs 684/671mn, reported at Rs -96/-46mn. The order backlog stood at Rs 131bn, which provides visibility of over a year.
Navigating through the COVID-19 crisis: 10/22 factories and a warehouse are located in Maharasthra, which is one of the worst affected states. As on date, all factories and ~75% of project sites have reopened and are at utilization levels of between 20% to 70%, with ~60% migrant workers in place. Remote commissioning, servicing, and factory acceptance tests have allowed the company to steer through the crisis. Cash conservation, receivables realization, and cost rationalization continue to be prime focus areas.
Industry outlook: 3QFY20 order wins include: (1) Rs 1.8bn orders for 900 CBs to a utility in South Africa, (2) GIS of Rs 1.5bn to Bangladesh, and (3) Propulsion systems to Kochi Metro. While private capex has come to a standstill, green shoots in terms of orders are emerging in industries – water, pharma, fertilizers, chemicals, F&B, etc. Short cycle order is, in particular, impacted by poor-offtake by the auto industry and logistics issues. While tendering in Railways/Metros across segments like Electrification, Signaling, Rolling Stock, etc., is encouraging with a long pipeline, competition is high. SIL is betting on cement and steel recovery too.
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