Robust segmental performance... Sales grew 9% YoY and 26% sequentially on the back of strong growth from segments Digital Factory(14% YoY), Mobility(63% YoY) and power distribution (22% YoY). Orders have been steady in 1HFY19 with ~13.7 growth YoY in overall (ex >Rs 1bn) order inflows with most orders coming from opex related upgradation Company's Vision 2020+ strategy has led to the reorganization of business verticals which is expected to enhance synergies. Uncertainties in the mobility, Gas & Power segments a overhang for investors We revise our rating to “Hold” with a target price of INR1,330 (35x Mar’21E EPS)
Valuations provide comfort: SIEM trades at FY19E/20E P/E of 34.5x/32.9x versus its long-term average trading multiple of 49x. The underperformance over the past one year can be ascribed to (a) MSCI exclusion, (b) the decision to sell-off the Mobility division to parent and (c) de-rating of the overall capital goods sector amidst election uncertainty. The current valuation provides comfort, given the scope of an improvement in the operating performance and the likely gradual recovery in capex spending. We upgrade SIEM to Buy with a target price of INR1,290 (35x Mar’21E EPS).
Digitalization key to growth, Capex recovery elusive. We expect SIEM to benefit from its strong focus on Digitalization/Automation opportunity due to very low penetration and industry’s drive to improve efficiency. We have raised FY19/FY20E EPS estimate by 2/3% mainly on account of strong 1HFY19 performance by Mobility and Power & Gas. We expect SIEM to deliver earnings CAGR of 15% over the next two years (FY18- 20E) and maintain Accumulate with revised target price of Rs1263.