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Siemens: Margins double, and so do profits - Views on News from Equitymaster
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Siemens: Margins double, and so do profits
Jan 29, 2010

Performance summary
  • Standalone sales grow by 13% YoY in 1QFY10 (fiscal year ends September), on the back of a 22% YoY and 30% YoY growth in sales of its power transmission and drive technology businesses respectively.
  • Operating margins expand by a substantial 8.2% YoY during the quarter, aided by lower costs of raw materials consumed (as percentage of sales).
  • Excluding extraordinary items, bottomline sees a 120% YoY surge, aided by the increase in operating margins as well as a big increase in other income.


Standalone financial performance
(Rs m) 1QFY09 1QFY10 Change
Sales 16,289 18,340 12.6%
Expenditure 14,697 15,034 2.3%
Operating profit (EBDITA) 1,593 3,306 107.6%
Operating profit margin (%) 9.8% 18.0%  
Other income 109 326 198.5%
Interest expense/(income) (165) (157) -4.5%
Depreciation 181 212 16.9%
Profit before tax 1,686 3,578 112.3%
Extraordinary income/(expense) 2,233 -  
Tax 611 1,214 98.7%
Profit after tax/(loss) 3,308 2,364 -28.5%
Net profit margin (%) 20.3% 12.9%  
No. of shares 337.2 337.2  
Diluted earnings per share (Rs)*   22.1  
P/E ratio (x)*   29.3  
* On a trailing 12-months basis

What has driven performance in 1QFY10?
  • Siemens reported a 13% YoY growth in sales during 1QFY10. This was mainly due to a 22% YoY growth in the sales of power transmission business which accounted for about 22% of total sales. Further, sales of the drive technology business which accounted for 15% of total sales grew by 30% YoY. The mobility segment was another business that showed a good growth of 40% YoY in the quarter.
    Segment-wise performance (Standalone)
      1QFY09 1QFY10    
    (Rs m) Sales % of total PBIT margins Sales % of total PBIT margins Sales growth Margin change
    Industry Automation 1,222 6.7% 9.3% 1,459 6.9% 11.7% 19.3% 2.4%
    Drive Technology 2,448 13.5% 5.2% 3,169 15.0% 15.1% 29.5% 9.9%
    Building Technologies 1,071 5.9% 4.4% 986 4.7% 3.4% -7.9% -1.0%
    Industry Solutions 2,237 12.3% 11.3% 2,366 11.2% 7.4% 5.8% -3.9%
    Mobility 2,237 12.3% -2.9% 3,126 14.8% 8.5% 39.7% 11.4%
    Fossil Power Generation 885 4.9% 6.9% 283 1.3% 45.1% -68.0% 38.2%
    Oil and Gas 930 5.1% 12.2% 1,556 7.4% 17.9% 67.3% 5.8%
    Power Transmission 3,881 21.3% 14.6% 4,728 22.5% 27.9% 21.8% 13.2%
    Power Distribution 1,968 10.8% 9.2% 1,909 9.1% 8.5% -3.0% -0.7%
    Healthcare 1,171 6.4% -1.0% 1,319 6.3% 4.7% 12.7% 5.7%
    Real Estate 152 0.8% 87.4% 159 0.8% 219.3% 4.6% 131.9%
    Total* 18,200 100.0% 8.4% 21,061 100.0% 16.2% 15.7% 7.9%
    * Excluding inter-segment adjustments

  • Siemens recorded an 8.2% YoY expansion in its operating margins during the quarter. This was largely on the back of an overall decline in costs of raw materials consumed (as percentage of sales). Based on segments, significant PBIT margin expansion was seen in mobility (transportation), power transmission, drive technology, oil & gas and industry automation business segments of the company.

  • Siemens recorded a 120% YoY growth in net profits during 1QFY10. This is however, on excluding the effect of extraordinary items. A robust increase in other income as well as strong operating performance led to this surge in net profits.

What to expect?
At the current price of Rs 647, the stock is trading at a multiple of 20.5 times our estimated FY12 earnings. We maintain our negative view on the stock from a long term perspective.

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