For the third quarter of FY08, revenues grew by only 1.5% y-o-y to Rs18.1 billion as the power sector performed below expectations and the company hived off a few businesses that contributed 5-6% to the overall revenue.
After excluding these businesses from the Q307 results, revenues grew 5.9% y-o-y in the absence of faster order execution.
EBITDA margin of 14.7% was the highest amongst the previous nine quarters. However, the current order book of 1xFY07 revenue does not provide a healthy revenue visibility and continues to be a major concern.
The company is also setting up a transformer-manufacturing facility, which should provide impetus to the declining power business revenue. Considering the steady demand for power, automation, industrial services, and healthcare products, we believe that Siemens should be able to bag base orders.
Moreover, the management is confident of doubling its revenue by 2010, which provides us an optimistic outlook about the Company’s performance.
Going by historical trends, we believe that the fourth quarter would be the strongest in terms of top-line growth. Thus, we estimate revenue to grow at a CAGR of 15% - 16% over FY07-09E.
At the current market price, the stock trades at a forward P/E of 28.7x for FY08E and 23.8x for FY09E earnings.
Based on our DCF valuation and assuming a WACC of 15.2% and a terminal growth rate of 5%, we believe that the stock is fairly valued and do not foresee a major upside from the current levels. We reiterate HOLD rating.