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  • This MNC stock can give 12% returns in three months

    Publish Date: September 19, 2018

    The markets are showing signs of weakness, but there may still be a way to earn handsome profits. A favourable confluence of technical and fundamental factors is at work, ensuring that this nearly Rs 35,000-crore company is well placed to gain financially. If you have a three-month time horizon, the stock can generate a 12% upside.

    Without further ado, let us tell you why we at Kotak Securities think Siemens Ltd., the flagship listed company of Siemens AG Group in India, is a reliable bet.

    Fundamental fillip

    Siemens in India is a technology powerhouse. The company focuses on the areas of electrification, automation, and digitalisation. Of late, the stock has been under pressure due to concerns which are largely unwarranted and indicate excessive pessimism.

    We believe that too much concern regarding Siemens Ltd.’s muted order book growth in Q3CY18—reflected in the current valuations at about 28 times its CY20 earnings—is misplaced.

    Siemens Ltd. operates in an area where the business cycle moves between quarters with heavy and light activity. As per the company management, the sluggish order book growth in the quarter was driven by the absence of large infrastructure tenders in the railway, power transmission and distribution, and power generation segments.

    Investors should instead focus on the baseline business. It has potential, shows promise, and is robust across most of the divisions. Plus, continued momentum in the digitalisation and mobility segments is expected to bear fruit in CY19–20.

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    We believe the business demand for Siemens from the railways should improve over the next few quarters. This is good news. Both passenger and freight transportation are expected to sustain the strong momentum. Network de-congestion and expansion are likely to drive revenues going forward.

    Siemens’ digital factory growth has remained buoyant. Revenues are up over 27% year on year in the nine months of CY2018. They grew nearly 40% in the third quarter of this calendar year, piggybacking on the MindSphere platform. This is a focus area for Siemens. In fact, it is the core of the company's strategy to ride the digitalisation wave.

    In terms of valuation, Siemens appears reasonable. It is available at a discount to multinational peers like ABB which is trading at PER 50x CY20 earnings. Do remember that Siemens stock is exposed to risks such as delays in infrastructure spends and private capex in the domestic market.

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    Terrific technicals

    The technical indicators also seem to be in favour of Siemens Ltd. stock. Since October 2007, the level of Rs 940 has acted as an equilibrium/fundamental level for the stock. We believe that this level acted as the resistance till 2015, when it broke out of the same. In 2016, the Rs 940 level offered strong support to the stock when it dropped by 20% in a month. Then, the stock bounced back to the Rs 1,450 level.

    As per a technical analysis, the Siemens stock has developed a double-bottom formation at Rs 940 on a daily basis, which will be validated after the stock crosses the level of Rs 1,050.

    This is why we expect the Siemens stock to achieve a minimum target of Rs 1,050 and a maximum of Rs 1,100 in the next three months. That would indicate a 12% increase from current levels.

    The Nifty Infra index is also indicating that the worst is over. Based on the above parameters, medium-term investors would benefit by investing in Siemens partially at the current price of Rs 978.

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