Railways and T&D driving inflows November 23, 2016 Kunal Sheth kunalsheth@plindia.com +91 22 66322257 Samir Bendre samirbendre@plindia.com +91 22 66322256 Rating Accumulate Price Rs1,055 Target Price Rs1,230 Implied Upside 16.6% Sensex 26,052 Nifty 8,033 (Prices as on November 23, 2016) Trading data Market Cap. (Rs bn) 375.1 Shares o/s (m) 355.5 3M Avg. Daily value (Rs m) 220.1 Major shareholders Promoters 75.00% Foreign 4.81% Domestic Inst. 9.27% Public & Other 10.92% Stock Performance (%) 1M 6M 12M Absolute (14.1) (4.4) (12.6) Relative (6.9) (7.7) (13.5) How we differ from Consensus EPS (Rs) PL Cons. % Diff. 2017 21.5 24.5 12.2 2018 26.6 30.1 11.6 Price Performance (RIC: SIEM.BO, BB: SIEM IN) (Rs) 1,600 1,400 1,200 1,000 800 600 400 200 0 Nov 15 Jan 16 Source: Bloomberg Mar 16 May 16 Jul 16 Sep 16 Nov 16 Weak margins in Power&Gas pull down overall margins: SIEM reported revenues of Rs30.9bn in Q4CY16 above our estimates (PLe: Rs29.6bn). Adjusted for Sales of healthcare business, sales were up 11% YoY. EBITDA was down by 14% YoY to Rs2.4bn in Q4CY16 (PLe: Rs2.8bn) mainly on account of 9% rise in other expenses. EBITDA margins were down by 80bps to 7.8% (PLe: 9%), other income was up by 67% to Rs683m and PAT was up 15% YoY to Rs1.7bn in Q4CY16 (PLe: Rs1.68bn). In segments, Power and Gas de grew by 5.7% YoY, Energy Management/ Building Technologies /Mobility/Digital factory were up 8.5%/41%/8%/23%/16% respectively. Order intake for the quarter stood at Rs24bn, down 23% YoY, while order inflow for the year stood at Rs120bn up 19% YoY. Key focus areas: SIEM highlighted that its portfolio is aligned with Government thrust areas like 24x7 Power, Smart Cities, Make in India, Rail Vision 2030 etc. The company is looking at leveraging its unique knowhow in areas like Electrification/Automation/Digitalization to provide solution to complement India s vision to be a global manufacturing leader. It is well placed to capture recovery in demand due to alignment of its business interests with government s vision and competitive local foot print. Outlook and Valuation: The stock is trading at 49.1x Sept 17 earnings. We believe that once the economic recovery sets in, we will start to see significant order inflows leading to earnings upgrades. Focus on cost optimization and localization should help competitiveness, which, in turn, will help SIEM once the market recovers. Given its wide portfolio, the company is best placed to benefit from recovery in capex cycle as and when it happens. We expect the company to deliver earnings CAGR of 25% over FY16 18E. Though at the stock may look expensive, once the order flow kicks in following economic improvement, the earnings growth is expected to be faster. We rate the stock as Accumulate. Key financials (Y/e September) 2015 2016 2017E 2018E Revenues (Rs m) 105,124 106,858 117,050 130,193 Growth (%) (1.4) 1.7 9.5 11.2 EBITDA (Rs m) 9,761 10,152 12,876 15,625 PAT (Rs m) 5,773 5,895 7,651 9,484 EPS (Rs) 16.2 16.6 21.5 26.6 Growth (%) 161.8 2.1 29.8 24.0 Net DPS (Rs) 7.5 7.5 7.5 7.5 Profitability & Valuation 2015 2016 2017E 2018E EBITDA margin (%) 9.3 9.5 11.0 12.0 RoE (%) 11.8 10.9 13.3 15.1 RoCE (%) 11.9 11.0 13.4 15.3 EV / sales (x) 3.4 3.3 3.0 2.7 EV / EBITDA (x) 36.3 35.2 27.5 22.7 PE (x) 65.1 63.7 49.1 39.6 P / BV (x) 7.1 6.8 6.2 5.8 Net dividend yield (%) 0.7 0.7 0.7 0.7 Source: Company Data; PL Research Q4FY16 Result Update Prabhudas Lilladher Pvt. Ltd. and/or its associates (the 'Firm') does and/or seeks to do business with companies covered in its research reports. As a result investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of the report. Investors should consider this report as only a single factor in making their investment decision. Please refer to important disclosures and disclaimers at the end of the report
Exhibit 1: Q4FY16 Result Update (Rs m) Y/e Sep Q4FY16 Q4FY15 YoY gr. (%) Q3FY16 FY17 FY16 YoY gr. (%) Net Revenues 30,906 32,995 (6.3) 26,204 117,050 106,858 9.5 Expenditure Raw Material & Components 21,003 22,859 (8.1) 17,365 83,691 76,938 8.8 % of Net Sales 68.0 69.3 66.3 71.5 72.0 Personnel 3,837 3,970 (3.3) 3,668 14,046 13,144 6.9 % of Net Sales 12.4 12.0 14.0 12.0 12.3 Others 3,651 3,349 9.0 2,832 6,438 6,625 (2.8) % of Net Sales 11.8 10.1 10.8 5.5 6.2 Total Expenditure 28,491 30,178 (5.6) 23,866 104,174 96,707 7.7 EBITDA 2,415 2,817 (14.3) 2,338 12,876 10,152 26.8 Margin (%) 7.8 8.5 8.9 11.0 9.5 Other income 683 407 67.5 279 1,415 1,287 10.0 Depreciation 462 475 (2.8) 625 2,387 2,318 3.0 EBIT 2,635 2,749 (4.1) 1,992 11,903 9,120 30.5 Interest 21 23 (10.2) 21 133 92 44.6 PBT 2,615 2,726 (4.1) 1,971 11,770 9,028 30.4 Unusal or infreq items (29,923) (707) NA PBT Adjusted 32,538 3,433 847.7 1,971 11,770 9,028 30.4 Total Taxes 7,868 1,242 533.4 670 4,120 3,133 31.5 ETR (%) 300.9 45.6 34.0 35.0 34.7 PAT 1,705 1,484 14.9 1,300 7,651 5,895 29.8 Source: Company Data, PL Research November 23, 2016 2
Exhibit 2: Segmental Breakup (Rs m) Y/e Sep Q4FY16 Q4FY15 YoY gr. (%) Segment Revenues Power and Gas 4,464 4,734 (5.7) Energy Management 11,324 10,435 8.5 Building Technologies 1,276 904 41.1 Mobility 3,436 3,185 7.9 Digital Factory 5,852 4,768 22.7 Process Industries and Drives 6,666 5,714 16.7 Others 488 203 139.8 Total 33,506 29,944 11.9 Less Intersegmental 2,600 2,206 17.9 Total Income 30,905 27,738 11.4 Segment Results margin % Power and Gas 5.4 13.2 Energy Management 6.5 6.7 Building Technologies 7.3 11.5 Mobility 6.6 10.0 Digital Factory 6.2 5.1 Process Industries and Drives 1.9 0.5 Others 33.2 34.0 Source: Company Data, PL Research November 23, 2016 3
Income Statement (Rs m) Net Revenue 105,124 106,858 117,050 130,193 Raw Material Expenses 70,814 76,938 83,691 93,086 Gross Profit 34,309 29,920 33,359 37,107 Employee Cost 13,942 13,144 14,046 14,321 Other Expenses 10,607 6,625 6,438 7,161 EBITDA 9,761 10,152 12,876 15,625 Depr. & Amortization 2,156 2,318 2,387 2,459 Net Interest 73 92 133 133 Other Income 1,604 1,287 1,415 1,557 Profit before Tax 16,964 9,028 11,770 14,590 Total Tax 5,131 3,133 4,120 5,106 Profit after Tax 11,833 5,895 7,651 9,484 Ex Od items / Min. Int. 6,060 Adj. PAT 5,773 5,895 7,651 9,484 Avg. Shares O/S (m) 356.1 356.1 356.1 356.1 EPS (Rs.) 16.2 16.6 21.5 26.6 Cash Flow Abstract (Rs m) C/F from Operations 9,481 5,372 9,154 9,731 C/F from Investing 3,330 (3,000) (3,000) (3,000) C/F from Financing (2,637) (3,169) (3,825) (4,563) Inc. / Dec. in Cash 10,174 (796) 2,329 2,168 Opening Cash 11,215 21,389 20,592 22,921 Closing Cash 21,389 20,592 22,921 25,089 FCFF 8,175 2,280 6,021 6,600 FCFE 8,175 2,280 6,021 6,600 Key Financial Metrics Growth Revenue (%) (1.4) 1.7 9.5 11.2 EBITDA (%) 64.2 4.0 26.8 21.4 PAT (%) 161.8 2.1 29.8 24.0 EPS (%) 161.8 2.1 29.8 24.0 Profitability EBITDA Margin (%) 9.3 9.5 11.0 12.0 PAT Margin (%) 5.5 5.5 6.5 7.3 RoCE (%) 11.9 11.0 13.4 15.3 RoE (%) 11.8 10.9 13.3 15.1 Balance Sheet Net Debt : Equity (0.4) (0.3) (0.4) (0.3) Net Wrkng Cap. (days) 16 28 27 29 Valuation PER (x) 65.1 63.7 49.1 39.6 P / B (x) 7.1 6.8 6.2 5.8 EV / EBITDA (x) 36.3 35.2 27.5 22.7 EV / Sales (x) 3.4 3.3 3.0 2.7 Earnings Quality Eff. Tax Rate 30.2 34.7 35.0 35.0 Other Inc / PBT 17.6 14.3 12.0 10.7 Eff. Depr. Rate (%) 6.9 6.8 6.4 6.1 FCFE / PAT 141.6 38.7 78.7 69.6 Source: Company Data, PL Research. Balance Sheet Abstract (Rs m) Shareholder's Funds 53,043 54,878 60,233 65,030 Total Debt Other Liabilities (3,175) (3,810) (4,571) (5,486) Total Liabilities 49,869 51,068 55,661 59,545 Net Fixed Assets 15,631 16,313 16,925 18,466 Goodwill Investments 1,764 1,764 1,764 1,764 Net Current Assets 32,474 32,992 36,972 39,315 Cash & Equivalents 20,959 18,544 21,507 21,507 Other Current Assets 65,525 73,190 78,888 87,747 Current Liabilities 54,011 58,743 63,423 69,939 Other Assets Total Assets 49,868 51,068 55,661 59,545 Quarterly Financials (Rs m) Y/e September Q1FY16 Q2FY16 Q3FY16 Q4FY16 Net Revenue 23,142 27,836 26,204 30,906 EBITDA 1,940 3,061 2,338 2,415 % of revenue 8.4 11.0 8.9 7.8 Depr. & Amortization 586 590 625 462 Net Interest 19 21 21 21 Other Income 411 270 279 683 Profit before Tax 1,746 2,720 1,971 2,615 Total Tax 606 946 670 7,868 Profit after Tax 1,140 1,774 1,300 (5,254) Adj. PAT 1,140 1,774 1,300 (5,254) Source: Company Data, PL Research. November 23, 2016 4
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