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Siemens: Raw material concerns looms large - Views on News from Equitymaster
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Siemens: Raw material concerns looms large
Jan 28, 2011

Siemens has announced its 1QFY11 results. The company has reported 35% YoY growth in topline. Net profits grow at a modest pace of 2% YoY. Here is our analysis of the results.

Performance summary
  • Sales grow by 35% YoY in 1QFY11 (September ending fiscal).
  • Operating margins decline to 14.4% in 1QFY11 on account of increase in overall expenditure as a percentage of sales.
  • Despite a fall in operating profits, bottom line registered a modest growth due to increase in interest income partially offset by higher depreciation expenses.
  • The order back log of the company as of 31 December 2010 stood at Rs 151 bn.


Standalone financial performance
(Rs m) 1QFY10 1QFY11 Change
Sales 18,671 25,254 35.3%
Other operating income 352 127 -64.0%
Expenditure 15,344 21,754 41.8%
Operating profit (EBDITA) 3,679 3,627 -1.4%
Operating profit margin (%) 19.7% 14.4%  
Interest expense/(income) 158 290 83.3%
Depreciation 227 266 16.9%
Profit before tax 3,610 3,651 1.1%
Tax 1,225 1,213 -0.9%
Profit after tax/(loss) 2,385 2,438 2.2%
Net profit margin (%) 12.8% 9.7%  
No. of shares   337.2  
Diluted earnings per share (Rs)   7.23  
P/E ratio (x)*   25.2  
* On a trailing 12-months basis

What has driven performance in 1QFY11?
  • Siemens reported 35% YoY growth in sales during 1QFY11. Rise in the business volumes of the oil & gas, fossil power generation, and building technologies segments drove the topline during the quarter. However, the performance of real estate, drive technology and mobility segments was a bit of a disappointment.

    Segment-wise performance (Standalone)
      1QFY10 1QFY11  
    (Rs m) Sales % of total PBIT margins Sales % of total PBIT margins Sales growth Margin change
    Continuing operations                
    Industry Automation 1,459 7% 11.7% 1,897 7% 9.5% 30% -2.2%
    Drive Technology 3,524 16% 14.5% 3,090 11% 6.5% -12% -8.0%
    Building Technologies 986 5% 3.4% 1,596 6% 1.3% 62% -2.1%
    Industry Solutions 2,366 11% 7.4% 2,917 11% 7.3% 23% -0.1%
    Mobility 3,126 15% 8.5% 2,672 10% 26.3% -15% 17.8%
    Fossil Power Generation 283 1% 45.1% 571 2% 19.2% 102% -25.9%
    Oil and Gas 1,556 7% 17.9% 3,241 12% 12.6% 108% -5.3%
    Power Transmission 4,728 22% 27.9% 6,952 26% 18.5% 47% -9.3%
    Power Distribution 1,909 9% 8.5% 2,740 10% 7.6% 44% -0.9%
    Healthcare 1,319 6% 4.7% 1,438 5% 1.2% 9% -3.5%
    Real Estate 159 1% 219.3% 125 0% 6.3% -22% -212.9%
    Total* 21,415 100.0% 16.1% 27,238 100.0% 12.3% 27.2% -3.8%
    * Excluding inter-segment adjustments

  • Siemens' operating margins fell to 14.4% in 1QFY11 from 19.7% in 1QFY10. This was on account of rise in raw material costs during the quarter. The fossil power generation and power transmission business segments, with a big fall in PBIT margins, contributed towards the overall margin erosion during the quarter.

  • Siemens' net profits witnessed a rise of 2.2% YoY during 1QFY11. Despite a decline in operating profits, net profits increased at a marginal pace due to increase in interest income partially offset by increase in depreciation expenses.

What to expect?
At the current price of Rs 727, the stock is trading at a multiple of 25 times our estimated FY12 earnings. Considering expensive valuations, we continue to maintain a cautious view on the stock (Research Pro subscriber's kindly click here).

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