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Dhirendra Tiwari ([email protected]); Tel: +91 22 3029 5127

Navneet Iyengar ([email protected]); Tel: +91 22 3029 5126

UpdateSECTOR: ENGINEERING

SiemensRs720 Upgrade to BuyBSE SENSEX S&P CNX

19,208 5,760

STOCK PERFORMANCE (1 YEAR)

SHAREHOLDING PATTERN % (JUN-10)

Domestic

Inst, 23.4

Others,

17.5

Foreign,

4.0

Promoter

55.2

Bloomberg SIEM IN

Reuters SIEM.BO

Equity Shares (m) 337.0

52-Week Range (Rs) 765/486

1,6,12 Rel. Perf. (%) -1/24/29

M.Cap. (Rs b) 242.6

M.Cap. (US$ b) 5.2

Order-book at all-time high; earnings visibility improves

41% growth in order intake in the last one year; momentum picking up in all

key sectors; expect 26% earnings CAGR over FY09-12

Strong play on Infrastructure, Industry and Transportation: A diversified Engineering

company, with exposure to Power (40% of its revenues), Industry (40% of sales),Transportation (14% of sales), Healthcare, etc, Siemens is one of the biggest

beneficiaries of the revival in the capex cycle in India.

Domestic T&D: Siemens is a technology leader in HVAC and HVDC transmissionsystems, and stands to benefit significantly from investments in the 765kV space.

It has invested meaningfully in setting up manufacturing facilities for high-end

products such as extra-high voltage transformers and GIS systems, which shouldbear fruit in the next few years.

Industry: Siemens has strong presence in automation, drives and projects across

industries and stands to benefit from the revival in industrial capex. Railways: Siemens has set up manufacturing plants for several key products like

traction motors. It is among the key beneficiaries of investments in railways, metro

rail systems and other large projects like the Dedicated Freight Corridor.

Key partner in Siemens AG's global network: Siemens has received orders worth

Rs95b from Qatar in the last four years, constituting ~20% of its total order intake

during the period. We believe that the company will continue to be Siemens AG'sgrowth vehicle in the Middle East and North African markets due to cost advantage.

Order momentum picks up: Siemens' total order intake in the last 12 months (June

2009 - June 2010) has been Rs120b, a growth of 41%. Order intake was boosted by alarge order, valued at Rs24.91b, from Kahramaa, Qatar. Currently, the company has

an order book of Rs135b, up 34%. In the current quarter (ending September 2010),

Siemens in consortium with Siemens AG, has received another large order from TorrentPower to set up two combined-cycle power plants. We expect the company to end

FY10 (September-ending) with an order-book of Rs154b, up 51%. Order flow momentum

is likely to remain strong in the near term, with possibility of more mega orders.

Margins on track: Siemens' margins suffered in FY07 and FY08 on account of losses

on two large orders. EBITDA margin improved to 12.1% in FY09. We expect EBITDA

margin to expand further to 13-14% in the next two years due to higher indigenization,better product mix, and better project management.

Valuation and view: We are revising our earnings estimates upwards by 3% for

FY10 and by 12% for FY11. With an estimated 26% earnings CAGR over FY10-12,Siemens is one of India's fastest growing engineering companies. Strong order book

and continuing momentum provides earnings visibility. The company is ideally positioned

to capitalize on opportunities in several sectors like power generation, wind power andtransportation. We expect it to be a key beneficiary of Siemens AG's widening footprint

in the Middle East. Any large order from Qatar can result in a substantial upgrade in

our earnings estimates. We upgrade the stock to Buy, with a target price of Rs907.

Y/E SEPTEMBER 2009 2010E 2011E

Net Sales(Rs b) 84.5 90.2 120.6

EBITDA (Rs b) 10.2 12.6 15.3

Net Profit (Rs b) 6.5 8.1 10.2

EPS (Rs) 19.4 24.0 30.2

EPS Gr. (%) 39.5 23.8 25.8

BV/Share (Rs) 86.5 104.7 126.8

P/E (x) 36.7 29.7 23.6

P/BV (x) 8.2 6.8 5.6

EV/EBITDA (x) 21.3 17.2 14.2

EV/ Sales (x) 2.6 2.4 1.8

RoE (%) 26.2 25.1 26.1

RoCE (%) 60.1 40.8 41.3

400500600

700800

Sep

-09

Dec

-09

Mar

-10

Jun-

10

Sep

-10

SiemensSensex - Rebased

Siemens India

13 September 2010 2

Multiple growth catalysts - diversified product profile tohelp sustain momentum

A diversified Engineering company, with exposure to Power (40% of its revenues), Industry(40% of sales), Transportation (14% of sales), Healthcare, etc, Siemens is one of thebiggest beneficiaries of the revival in the capex cycle in India.

Power sector: Siemens is a key player in the T&D segment, which focus ontransformers, substations and automation. It has a market share of nearly one-third inall 765kV substations awarded in India. It has also set up a world-class extra-highvoltage transformer and GIS manufacturing factory, which will strengthen its positionin the Indian T&D market. It is aggressively targeting the e-BoP (electrical Balance-of-Plant) segment of the generation segment, which will provide additional growthopportunity.

Railways and urban transport are key growth areas: While Siemens benefitsfrom investments in a vast number of infrastructure sectors, Railways accounts for alarge chunk of the overall pie. It is a dominant player, with local manufacturing capacityfor traction motors, rolling stock and control panels. The company has bagged severalkey railway projects and will continue to benefit from overall investments in the sector.

Dominant position in industrial automation and drives: Siemens continues toenjoy leadership position across various industries. It has a strong presence in motors,automation and drives, and industrial turnkey projects.

A key player in Siemens AG's global footprint

Siemens has received orders worth Rs95b from Qatar in the last four years, constituting~20% of its total order intake during the period. We believe that the company willcontinue to be Siemens AG's growth vehicle in the Middle East and North Africanmarkets due to cost advantage.

Many of Siemens India's facilities are 'centres of competence' for products such aspower and instrument transformers, industrial steam turbines and gas-insulatedswitchgear. These products meet global quality standards and the parent will outsourcetheir manufacturing to Siemens India to meet its requirements in developing countries.

Strong pick-up in order flows, order book up 34% to Rs135b

We expect Siemens to post a strong 60% growth in order intake in FY10, after a lull ofnearly three years. After bagging a large order from Qatar in October 2005 and subsequentrepeat orders in 2006, Siemens India failed to win large orders until 4QFY09, when itreceived a Rs7.4b order (Siemens India's part) from Adani Power to set up a 765kV lineto evacuate power from Adani's under-execution 6,600MW power plant in Gujarat. Thiswas followed by two large orders from Kahramaa, Qatar, valued at Rs6.08b and Rs24.91bin the last few months.

Delays in Power Grid related orders have also led to stagnation in order book. However,order book outlook is improving now, with orders from Power Grid starting to acceleratenow. Order flow momentum is likely to remain strong in the near term.

Suitable mix of projects,

products and services will

partly insulate the company

from sharp cyclical

downturns

Exports accounted for

25% of sales in FY09

International orders account

for nearly 25% of the order-

book; more orders likely

Siemens India

13 September 2010 3

ORDERS GROWING AT BRISK PACE AFTER TWO YEARS

QUARTERLY ORDER-INTAKE

BOOK-TO-BILL AT ALL TIME HIGH LEVELS

BTB IMPROVES AFTER NINE STRAIGHT QUARTERS

1730

41

82

10187 88

141

98.9

60.0

0.9-14.0

23.636.8

79.9

45.1

FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10E

Order intake (Rsb) Grow th (%)

8.9 21.3 35.1

75.394.1 98.3 102.3

153.4

1.7

1.21.21.21.71.3

1.2

0.6

FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10E

Order book (Rs m) BTB

42

1612 12

51

19 1813

1923 21

2420 19

2326

52

22 20

1QF

Y06

2QF

Y06

3QF

Y06

4QF

Y06

1QF

Y07

2QF

Y07

3QF

Y07

4QF

Y07

1QF

Y08

2QF

Y08

3QF

Y08

4QF

Y08

1QF

Y09

2QF

Y09

3QF

Y09

4QF

Y09

1QF

Y10

2QF

Y10

3QF

Y10

71 76 77 75 110 109 108 94 94 96 98 98 103 97 102 103 136 134 136

1.61.61.61.21.21.21.21.21.21.21.21.3

1.7

2.4

2.11.92.2

2.52.6

1QF

Y06

2QF

Y06

3QF

Y06

4QF

Y06

1QF

Y07

2QF

Y07

3QF

Y07

4QF

Y07

1QF

Y08

2QF

Y08

3QF

Y08

4QF

Y08

1QF

Y09

2QF

Y09

3QF

Y09

4QF

Y09

1QF

Y10

2QF

Y10

3QF

Y10

Order Book (Rs b) BTB (x,TTM)

Order-intake in FY10 is

boosted by two large orders,

aggregating over Rs5b

Company received a large

order of Rs 25b from its key

client in Qatar, Kahrama,

in 1QFY10

High Book-to-Bill

will ensure strong

growth visibility

Source: Company/MOSL

Siemens India

13 September 2010 4

RECEIVED TWO MEGA-ORDERS IN 2010

CLIENT VALUE DATE EXECUTION PROJECT

(RS M)

Torrent Power NA 2-Ju-10 36 Months Two CCPP with total 1600 MW capacity

Gurgaon Metro NA 11-May-10 30 Months Total rail Solutions for 6.1 km stretch of line

PGCIL, India 1,000 2-Feb-10 11 months 1 unit of 765 KV Substation job.

Kahramaa, Qatar 24,910 19-Jan-10 36 months Total order Rs29,560m, with Siemens AG,

substation works.

Kahramaa, Qatar 6,080 10-Nov-09 24 months Cables works.

Ezdan, Qatar 3,420 8-Oct-09 15 months Ezdan Real Estate QSC, substation jobs,

with SAG (Rs610m).

PGCIL, India 3,600 30-Sep-09 27 months 2 units of 765 KV substation jobs.

PGCIL 1,090 22-Jul-09 24 months I unit of 765 KV substation job.

Vedanta Alumunium 1,120 22-Jun-09 - HV distribution system at Smelter plant at

Jharsuguda, Orissa

Kahramaa, Qatar 790 4-May-09 24 months Air insulated Circuit breakers.

Adani Power 7,200 30-Apr-08 - With SAG (6,600m), EPC contract to set

up a bipolar 500 KV HVDC line, transmission

capacity of 2,500 MW.

PGCIL: Powergrid Corporation of India, Kahramaa: Qatar General Electricity & Water Corporation


EBITDA margin up sharply

Siemens' margins have been stable at 9-10% over FY02-08. However, there has beenconsiderable volatility on quarterly basis. The company incurred losses on EPC contractto execute Torrent's combined cycle power project (1,350MW) bagged in FY05. It provideda significant amount for 'anticipated losses' on this project during 3QFY07 (quarter endedJune 2007) and again in 2QFY08 (quarter ended June 2008). 2QFY08 earnings wereparticularly impacted, as the company made a provision of Rs1.09b against anticipatedlosses and made a sales reversal of Rs1.17b. Profitability has improved sharply in FY09,as margins expanded across segments.

EBITDA MARGIN IS IMPROVING (%)

12.912.714.0

12.19.19.48.910.29.9

9.18.6

FY

02

FY

03

FY

04

FY

05

FY

06

FY

07

FY

08

FY

09

FY

10E

FY

11E

FY

12E

Provisioning for losses on

two large projects adversely

impacted margins in

F07 and FY08


Aggressive capex - to invest Rs16b in the next three years

Siemens India has invested more than Rs6b in the past four years to build fresh capacities.It has announced its intent to invest Rs16b over the next three years. A large part of itsexports will be aimed at the renewable energy sector. The company is also likely to makeIndia as a hub for value-priced products. Higher localization should boost margins.

Siemens India

13 September 2010 5

The company has also made mid-sized acquisitions in core product areas of buildingtechnologies, electrical products like switchgear, and medical diagnostics.

CAPEX

PRODUCTS DATE CAP COST LOCATION COMMENTS

(P.A.) (RS M)

Industrial steam turbines Jan-07 NA 300 Vadodara Capacity being trippled,

cost Rs2,750m, by 2010.

Transformer factory Dec-07 15,000 2,000 Thane 800 KV, HVDC, Furnace

MVA applications

Instrument Transformer Aug-08 3,000 units 250 Aurangabad SF6 insulated CT, PT, etc.

Gas Insulated switchgear Apr-09 NA 400 Aurangabad Wide voltage range -

72.5, 145, 245, 400 kv range


INCREASING LOCALIZATION IMPROVING PROJECT MARGINS

6

15

2 3

39

34

40

16% 19%

23%33%

50% 49%40%

119%

84%88%97%93%91%93%

FY03 FY04 FY05 FY06 FY07 FY08 FY09

Project Sales (Rsb) Projects (% of Total Rev) Project Boughtout (% of Project sales)

With projects accounting for

over 25% of sales, level of

indigenization will have

strong bearing on margins


Siemens India

13 September 2010 6

Acceleration in T&D investments a key growth driver

PLANNED INVESTMENT OUTLAY (RS B)

Transmission is expected to

be fastest growing sector

Buoyed by doubling of inter-

regional transmission

capacity every five years

Source: CEA

Transmission investment keeps pace under Eleventh Plan

The transmission sector has invested ~Rs550b during FY08-10, amounting to nearly 40%of planned investments. Transmission investment, being back-ended, should accelerateover the next two years. To facilitate inter-regional transfer of power, inter-regionaltransmission capacity is being expanded to 38,650MW by the end the Plan from 20,750MWas at March 2009, at an investment of ~Rs550b by Power Grid (total 11th Plan). Further,an investment of Rs414b will be required to evacuate power generated from nearly 35GWof power capacity to be commissioned in the next five years by private developers.

IR CAPACITY PLANNED (GW)

Source: Ministry of Power/CEA

PGCIL to meet its investment target by FY12

Power Grid Corporation of India (PGCIL), the central transmission utility, is likely toachieve the capex of Rs550b targeted under the Eleventh Plan, despite meaningful delaysin generation capacity additions. This is largely due to incremental capex towardstransmission projects linked to generation capacities being set up by private sector entities,which were not part of the original estimates. Also, ~40% of PGCIL's capex is towardssystem strengthening, not completely linked to generation capacity additions.

Siemens India

13 September 2010 7

Multi-fold jump in demand for 765kV transformers and substations

With growing emphasis on large-scale power projects based on super critical technology,extra-high voltage (EHV) transmission segment will see increased activity, particularly inthe 765kV transformer range. The 765kV system will account for 29% of totaltransformation capacity addition proposed in the Eleventh Plan, at 51,000MVA. This numberis expected to increase by 2x to 110,000MVA, 39% of the planned capacity additionduring the Twelfth Plan. 78% of the transformer ordering by PGCIL in FY09 and FY10has been in the 765kV/500MVA range (333MVA in a few cases). Companies in thissegment are likely to benefit on account of technological barriers to entry and limitedcompetition compared to other growing transformer segments.

PLAN-WISE CAPACITY

CAPACITY AT END OF PLAN PERIOD PLAN-WISE ADDITION

(MVA) 10TH PLAN 11TH PLAN (E) 12TH PLAN (E) 10TH PLAN 11TH PLAN (E) 12TH PLAN (E)

765kV 2,000 53,000 163,000 2,000 51,000 110,000

400kV 92,942 145,000 225,000 32,562 52,058 80,000

230/220kV 156,497 230,000 325,000 40,134 73,503 95,000

Total 251,439 428,000 713,000 74,696 176,561 285,000

Source: CEA

Expect Siemens to gain market share

T&D is a core area of growth for Siemens. The company has the capability to set upExtra High Voltage Transmission Systems like HVAC (High Voltage Alternating Current)and HVDC (High Voltage Direct Current). It has set up a large advanced transformerfactory, with a capacity of 15,000 MVA, which was commissioned in December 2007.We expect Siemens to become a key player in 765kV transformer market in the nextcouple of years (no order as yet). Siemens has already bagged a third of PGCIL's 765kVsubstation orders.

During FY08-10, PGCIL's capex was Rs254b and the targeted spending in FY11-12 isRs286b. Also, under the Twelfth Plan (FY13-17), targeted capex is Rs1t+, ~2x the EleventhPlan capex, driven by investments in EHV transmission corridors for private IPP projectsand system strengthening.

EXPECT PGCIL TO ACHIEVE ELEVENTH PLAN TARGETS MEANINGFUL ACCELERATION IN PLAN-WISE CAPEX BY PGCIL (RS B)


Siemens India

13 September 2010 8

Qatar: boosting Siemens India's growth

Over the last five years, Siemens India has bagged several projects in consortium withSiemens AG. With a total value of Rs95b, these projects account for ~20% of SiemensIndia's order intake since FY06. Its key client in Qatar is Qatar General Water and ElectricityCorporation (Kahramaa), the country's sole power and water distribution company. Siemenshas also received an order from Ezdan Real Estate QSC. We believe that Siemens willcontinue to be among the biggest beneficiaries of the infrastructure investments in theMiddle East, particularly Qatar.

ORDERS FROM QATAR (RS M)

DATE SIEMENS SIEMENS MONTHS SCOPE

INDIA AG

11-Oct-05 13,900 1,800 22 16 HV substations and 600 km of high voltage

cables. Part of Phase V of Qatar Grid.

28-Nov-05 8,500 1,500 18 3 units of GI substations. Part of Phase V of

Qatar Grid.

9-Mar-06 5,300 1,100 19 5 units of 220/132/66 KV substations. Part of

Phase VI of Qatar Grid.

22-Nov-06 36,000 4,000 22 25 substations, extension of 14 and renovation

of 10 substations. Part of Phase VII of Grid.

4-May-09 790 - 24 11 units of Air insulated CBs

8-Oct-09 3,420 610 15 Ezdan Real Estate QSC, 4 substations

220 KV/ 66 kV/11 kV.

10-Nov-09 6,080 - 24 Cable works.

19-Jan-10 24,910 4,650 36 14 substations and 5 modifications. Part of

phase IX of Qatar Grid.

All projects from Kahramaa, except the one from Ezdan Source: Company/MOSL

Expect more orders from Middle East

Qatar is setting up three large power projects with aggregate capacity of 6,730MW, whichwill raise the installed capacity to 10,000MW by 2012. Kahramaa, to meet the transmissionrequirement, is engaged in an 'Electricity Network Expansion Programme' comprising ofseveral phases. Phase-VII of the project was completed in 2QCY09, involving totalinvestment of US$2b. Even as Phase-VIII is under progress, the company has startedordering out various packages under Phase-IX. Phase IX will cost over US$2b and will becompleted by 2012. This phase will involve construction of 22 substations, 3 undergroundsubstations, 375km of cables and 62km of overhead lines.

PGCIL: 765KV SUBSTATION MARKET SHARE (IN NOS.) PGCIL: 765KV TRANSFORMER MARKET (IN NOS.)


Qatar accounts for nearly

20% of Siemens' order-

intake in last four years;

strong outlook for more

opportunities from Qatar

and neighbouring countries

Siemens India

13 September 2010 9

Siemens AG is has a strong presence in the country and is likely to be a key partner ininfrastructure development. This will include transmission lines, transportation, aviation,etc. The company's recent successes in Phase-IX of Kahramaa Transmission Grid Projectaugers well. We believe that given the manufacturing and services capability that SiemensIndia has, it will be the key beneficiary of Siemens AG's widening footprint in the region.

Qatar orders yield good margins

Profitability for Kahramaa orders has been impressive and broadly in line with domesticorders. Having already established the basic infrastructure for project implementation inQatar, Siemens will continue to enjoy good margins from ongoing and future projects.

STRONG PROFITABILITY ON EXPORTS, BOOSTING TRANSMISSION EBIT MARGIN

Sharp jump in transmission

margins in last few quarters

has been aided by Qatar

orders received in 2006;

now completed


Siemens India

13 September 2010 10

Industrial segment: strong pick-up in sales

After a brief hiatus in late 2008 and 2009, the capex cycle is moving ahead. Despiteconcerns on inflation and possibility of interest rate hikes, the domestic industry continuesto grow at a rapid pace, barring minor aberrations.

EXHIBIT: CAPITAL GOODS GROW AT A FAST PACE


STRUCTURE OF SIEMENS’ INDUSTRY SEGMENT

INDUSTRY SEGMENTS % OF SEGMENT KEY PRODUCTS KEY COMPETITORS

SALES

Industry Automation 22 Automation products and solutions ABB, Honeywell

Drive Technologies 27 Motors, drives, turbines, drive ABB, Crompton, BHEL

systems, panels.

Building Technologies 2 Building management Solutions Honeywell

Industry Solutions 24 Large industrial projects ABB, Honeywell

Mobility (Railway) 25 Railways- Traction motors, signalling BHEL, Alstom,

equip; Aviation products and solutions Bombardier


Mobility: huge potential

Siemens' mobility division is a key player in rail transport solutions. Its units at Kalwa(Thane) and Nashik have advanced manufacturing capacity to produce railway propulsionequipment. The division has bagged several key projects in the past from Indian Railways.Recently, it received an order from Delhi Metro for electrification of the metro line fromthe airport as also the baggage check-in facility at the airport. Despite slowdown in thegeneral industrial environment, the mobility division has posted strong growth in FY09.With investment pipeline that the Indian Railways has and likely progress on the DedicatedFreight Corridor (Rs570b), coupled with growing expenditure on modernisation on Indianairports, Siemens' mobility business will be among its fastest growing businesses.

The mobility business has been incurring losses for the past two years due to cost and timeover-run on a large project. The division reported a profit in 1QFY10. With larger projectportfolio and higher localization, this business should remain profitable.

Siemens has strong

presence across industries;

in automation, drives and

projects and stands to

benefit from reviving

capex cycles

Siemens India


Earnings CAGR of 26% over FY09-12E

KEY EARNINGS ASSUMPTIONS

FY05 FY06 FY07 FY08 FY09 FY10E FY11E FY12E

Order Intake (Rs b) 41.2 82.0 101.4 87.2 88.0 140.7 147.8 177.3

Growth (%) 36.8 98.9 23.6 (14.0) 0.9 60.0 5.0 20.0

Order Book (Rs b) 35.1 75.3 94.1 98.3 102.3 153.4 181.3 206.0

Revenues (Rs b) 27.5 45.1 77.3 83.0 83.9 89.7 119.8 152.7

Execution Ratio (x) 0.36 0.29 0.40 0.45 0.44 0.30 0.36 0.40

Book to Bill (x) 1.28 1.67 1.22 1.19 1.22 1.71 1.51 1.35

Cost Assumptions (%)

RM/Sales 70.1 73.5 76.2 74.8 68.2 66.8 69.0 70.0

Employee Cost/Sales 7.4 6.2 5.1 5.2 6.5 7.1 6.4 6.0

Other Expenses/Sales 12.3 11.4 9.2 10.8 13.2 12.1 11.9 11.1

Total Cost/Sales 89.8 91.1 90.6 90.9 87.9 86.0 87.3 87.1

EBITDA Margin 10.2 8.9 9.4 9.1 12.1 14.0 12.7 12.9


STRONG ORDER INTAKE IN FY10

BTB AT ALL TIME HIGH

Order intake in FY10 is

boosted by two large orders,

aggregating over Rs5b

Order intake expectations

for FY11-12 do not include

upsides from new lines of

business like WTG


Siemens India


3-YEAR SALES CAGR OF 22%

MARGINS STRUCTURALLY AT HIGHER LEVELS

PAT CAGR OF 26%

Revenue growth will be

boosted by large orders

received in FY10 and pick

up in industrial products

Margins will be supported

by better project

profitability, growing

product portfolio and

improving capacity

utilization

Consistent profitability

track record, except FY08


Siemens India


Valuation and view

Siemens is among the best performing capital goods stocks over the last one year,outperforming the Sensex by 29%. However, before March 2009, the stock underwent aperiod of underperformance, as well.

Two events had acted as key de-rating catalysts in 2007-08

1. The company incurred substantial losses on its EPC contract to set up a 1,147MWgas-based power project for Torrent Power. This resulted in significant write-offs in3QFY07 and 2QFY08, thereby impacting margins. The stock fell 10% on 25 April2008, after 2QFY08 results were announced. This also raised concerns on thecompany's capability to maintain margins in large projects.

2. SISL, its wholly-owned software subsidiary, which accounted for 12% of sales and20% of profit in FY07, posted poor results for FY08 and was also divested to SiemensAG. This raised concerns on Siemens AG's strategy with respect to its Indian operations.

We upgrade the stock to buy with a target price of Rs907

With an estimated 26% earnings CAGR over FY09-12, Siemens is one of India'sfastest growing engineering companies. Strong order book and continuing momentumprovides earnings visibility.

The company is ideally positioned to capitalize on opportunities in several sectors likepower generation, wind power and transportation. We believe that growth can besustained for a much longer timeframe.

We expect Siemens to be a key beneficiary of the parent's outsourcing needs. Anylarge order from Qatar can result in a substantial upgrade in our earnings estimates.

We upgrade the stock to Buy, with a target price of Rs907 (30x FY11E EPS).

SIEMENS V/S ABB - P/E BAND SIEMENS P/E PREMIUM/DISCOUNT TO ABB (%)

Source: Bloomberg/MOSL

Valuation in FY08-09

impacted due to losses on a

couple of large projects,

divestment of software

subsidiary and slowdown in

core business; recent re-

rating driven by improving

earnings visibility

Siemens India


SIEMENS P/E (X)

SIEMENS P/BV (X)

Source: Bloomberg/MOSL

Siemens India


Key risks

Business restructuring: During the last three years, Siemens India has divested businessessuch as Information & Communication, Telecom, Automotive and Information Technologyto its parent. Information & Communication and Telecom (SPCNL) businesses, whichcontributed ~1.4% and ~4.8% of FY07 revenues, were divested in FY07. The Automotive(VDO) business, which was divested in 1QFY08, contributed ~1% of FY07 revenues.Information Technology (SISL), which was divested in 1QFY09, contributed ~10% ofFY08 revenues. Though we do not see any meaningful business restructuring in theforeseeable future, any change in Siemens AG's global strategy will impact Indian operationsand hence Siemens India's valuations.

Diverse product mix makes quarterly earnings volatile: Siemens has a presence inmany segments of the electrical engineering industry, which have different pricing andprofitability trends. Moreover, long-gestation projects have started to dominate the orderbook. As a result, one should expect considerable volatility in quarterly margins. Earningsvolatility may have an impact on stock performance in the short-term.

EBITDA MARGIN (%)


Slowdown in economy, adverse exchange and interest rate movement: (1) Asubstantial hike in interest rates can derail capex plans of corporates, thereby impactingcapital goods manufacturers like Siemens. (2) Siemens reported foreign exchange gain ofRs1.1b in FY08 and Rs2.1b in FY09. In the first three quarters of FY10, the company hasposted forex loss Rs1.8b. Sharp movement in exchange rates can adversely impact reportedprofits.

Siemens India


Financials and Valuation

Siemens India


N O T E S

Siemens India


For more copies or other information, contactInstitutional: Navin Agarwal. Retail: Manish Shah

Phone: (91-22) 39825500 Fax: (91-22) 22885038. E-mail: [email protected]

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Disclosure of Interest Statement Siemens

1. Analyst ownership of the stock No2. Group/Directors ownership of the stock No3. Broking relationship with company covered No4. Investment Banking relationship with company covered No

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