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Reduce Siemens India – Kotak

November 28, 2008

The software subsidiary Siemens Information Systems Ltd – SISL, which had an extraordinary loss and increase in tax liability has impacted the results of Siemens India. The management clearly indicated that Energy, Industry and Healthcare are the focus areas for Siemens India Ltd. Siemens management further indicated that the worst of the project-related losses are behind us so far as Torrent Power project is concerned.

SISL was reoriented in a new form as Siemens IT services (SIS) and it has become a prime offshore development centre for SIS globally. SISL reportd revenues of 9943 mn and a net prodit of 339 mn. Margins were impacted by rupee appreciation. During the year, there was a change in business model which affected profitability. Further there were higher tax charges as more revenue came under tax liability.

It appears that likelihood of transfer of infotech business (SISL) to parent cannot be ruled out in the future. But we sincerely hope that the Management does it at some cost and cash be transferred to Siemens India, one of the old established players in the Software industry.

Siemens is trading at 11.4x and 10.4x FY09 and FY10 earnings respectively. In view of the changes made, Siemens can be REDUCED from portfolio as the target price stands revised to Rs 260 from Rs 340.

Update:
Minutes ago, JP Morgan has come out with an UNDERWEIGHT rating on Siemens India and has set a new price target of Rs 190.

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