Siemens’ FY08 standalone revenues grew by 7.6% YoY as order intake decreased 14% y-o-y.
Execution also suffered due to overruns in a couple of large projects. Revenue reversals in these projects further impacted growth and margins.
Though the company stated that issues in the troubled projects have been sorted, we believe that execution risk remain till these projects are complete.
EBIT margins for all segments except transport are at five year high. We estimate margins in new orders would be lower as compared to existing orders.
In the FY08 analyst meet, management commentary on the demand environment remained cautious. Order coverage ratios have already deteriorated as order intake declined 14% y-o-y.
Consequently growth is unlikely to accelerate and margins are at risk as new orders would likely have lower margins as compared to existing orders.
Moreover, prospects of the Indian entity would be linked to performance of Siemens AG globally as optimization of global capacities would be a key determinant of exports from India.
We cut our target price as we reduce our FY09 PE multiple from 13x to 11x (15% discount to ABB) due to increased risk to growth from changes in group strategy.