Siemens reported a 1Q11 result well above our expectations. Order book also remains robust. However, margin sustainability is still key for this company given historical volatility in its Power business. We maintain Sell and prefer Crompton Greaves in this space.

Energy segment performance leads to strong 1Q11 results
Siemens reported 1Q10 revenues of Rs25.4bn (up 33% yoy) well above our expectations. EBITDA margin for the quarter stood at 14.3%, down 505bp yoy, mainly due to rising input material costs. Reported profit for the quarter came in at Rs2.4bn (up 2% yoy). Adjusting for one-off gain of Rs760m in 1Q10, profit grew by 37% yoy. The Energy segment reported 59% growth in revenue to Rs13.5bn, while the Industry segment was relatively muted. But, PBIT margin for the Energy segment fell 732bp yoy to 14.9%.

Order inflow declines; margin sustainability remains key
The company reported order inflow of about Rs40bn during the quarter, down 23% yoy, though there was a large order in 1Q last year. The order book for the company grew to Rs15.1bn (up 11% yoy and qoq). We believe the current orders might be based on lower pricing and, so, expect margins to decline going forward. Sustainability of margins remains key for the company, particularly as it enters an enhanced stage of execution in the Qatar order that it is executing for its parent. The higher margins seen in FY10 were partly attributable to completion of several old better-priced orders and one-off gains. In addition, the rising trend in materials costs may further dampen margins in future.

Siemens a diversified play; but we prefer Crompton Greaves
We believe Siemens, with its diversified business, is a better pick than ABB among MNC T&D companies. Siemens recent initiatives may provide future growth areas, but we await more clarity. However, we prefer Crompton Greaves to the MNC T&D companies. We slightly increase our FY11-13F sales numbers to take into account the stronger 1Q11 result. We increase our WACC on account of the increase in our higher-risk free rate. We maintain Buy with a TP of Rs620. The stock currently trades at 27x FY11F EPS.