The Hindu Business Line : Siemens: BUY

A BURGEONING order book and buoyancy in the engineering and power equipment sectors that impart high visibility to the earnings growth, and an increasingly important role in the parent's global operations, make Siemens an attractive candidate for the portfolio. We have maintained a bullish view on the stock for the past four years with the latest `buy' call in August 2005 at Rs 2,290. We reiterate a buy on Siemens at Rs 4,468. Exposures may be considered with a one-to-two year perspective. Investors could especially use any decline linked to the broad market to accumulate the stock, which trades at 28 times its expected earnings for FY06.

We do not expect the stock to deliver manifold gains of the kind witnessed over the past couple of years. We do, however, expect it to offer moderate returns that will be appropriate for a large-cap stock that still has considerable growth potential. There is also the possibility that the stock price could stabilise at higher levels when it adjusts for the stock split. Investors will get five shares of Rs 2 each for every share held.

Orders of about Rs.7, 000 crore that cover the FY 05 revenues three times and the pace of accretion to the order book point to robust growth prospects. Huge projects bagged in overseas markets will broad-base the revenue stream and offer a cushion against any unexpected slowdown in the Indian market. A couple of mergers and acquisitions over the past two quarters are likely to further strengthen Siemen's position in the power and communications sectors.

Growth trends in revenues of the power division - Siemens' mainstay - and expanding margins in its other businesses, aided by reduced input costs, augur well. We also expect the contribution of Siemens Information Systems, a 100-per cent subsidiary, to increase; it is now a development partner for the all Siemens AG group companies and appears to be on a high growth trajectory.

The principal risks are delays in conversion of order book to revenues, a slide in flow of new orders and spurt in metal prices, which will hurt margins.

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