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Siemens: Transport, automation lead growth - Views on News from Equitymaster

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Siemens: Transport, automation lead growth
Feb 1, 2008

Performance summary
  • Standalone sales grow 18% YoY in 1QFY08 (October to September fiscal), mainly led by growth in transport and automation businesses. Excluding the sales of businesses discontinued during the quarter, sales growth for 1QFY08 stands at almost 25% YoY.

  • Operating margins expand by 0.6% in FY07, aided by lower costs for purchase of traded goods (as percentage of sales).

  • Bottomline doubles during the quarter, aided by a one-off income on account of profit on sale of building technologies and automotive businesses (the former to a subsidiary of the company itself).

Standalone financial performance
(Rs m) 1QFY07 1QFY08 Change
Sales 16,269 19,144 17.7%
Expenditure 15,100 17,647 16.9%
Operating profit (EBDITA) 1,170 1,497 28.0%
Operating profit margin (%) 7.2% 7.8%  
Other income 213 66 -69.1%
Interest expense/(income) (126) (131) 3.5%
Depreciation 103 151 46.5%
Profit before tax 1,406 1,543 9.7%
Extraordinary income/(expense) - 1,246  
Tax 426 819 92.3%
Profit after tax/(loss) 981 1,971 100.9%
Net profit margin (%) 6.0% 10.3%  
No. of shares   168.6  
Diluted earnings per share (Rs)*   41.3  
P/E ratio (x)*   39.6  
* On a trailing 12-months basis

What has driven performance in 1QFY08?
  • Siemens’ transport and automation & drives business led the company’s topline growth of 18% YoY during the quarter. While the former grew by 148% YoY, the latter recorded sales growth of 40% YoY. The company’s power equipment business, which forms 53% of totals sales, grew by a slower rate of 10% YoY, probably because the some of the large projects are just in the initial phases of execution.

    1QFY08 saw Siemens discontinue the three businesses of building technologies, information & communication and automotive. While the building technologies business will continue to exist in the consolidated entity (as it has been transferred to a subsidiary of the company itself), the automotive business will now be a part of the parent, Siemens AG. As for the information & communication business, it was sold with effect from August 2007 to Siemens Enterprise Communication Pvt. Ltd., a wholly owned subsidiary of the parent company.

    Table: Segment-wise performance (Standalone)
      1QFY07 1QFY08    
    (Rs m) Sales % of total PBIT margins Sales % of total PBIT margins Sales growth Margin change
    Continuing operations                
    Power 9,888 58.0% 7.2% 10,825 53.0% 8.5% 9.5% 1.3%
    Industrial Solutions & Services 1,638 9.6% 11.3% 2,271 11.1% 11.4% 38.7% 0.0%
    Automation & Drives 3,164 18.6% 4.4% 4,417 21.6% 6.1% 39.6% 1.6%
    Transport 584 3.4% 9.5% 1,452 7.1% -9.6% 148.4% -19.1%
    Healthcare & Other Services 766 4.5% -8.7% 1,102 5.4% -0.6% 43.8% 8.1%
    Real Estate 113 0.7% 64.1% 133 0.7% 65.8% 18.3% 1.6%
    Discontinued operations                
    Building Technologies 248 1.5% 4.8% -        
    Information & Communication 352 2.1% 7.1% -        
    Automotive 289 1.7% -0.4% 232 1.1% 3.6% -19.9% 4.0%
    Total* 17,041 100.0% 6.7% 20,432 100.0% 6.8% 19.9% 0.2%
    * Excluding inter-segment adjustments

    During the quarter, Siemens received orders worth Rs 19 bn, as compared to Rs 51 bn received in 1QFY07. After adjusting the large order worth Rs 36 bn won for the development of power transmission network in Qatar in 1QFY07, the order intake has grown by 25% YoY. At the end of December 2007, the company’s order backlog stood at Rs 94 bn, or almost equal to its FY07 consolidated sales.

  • Siemens recorded a 0.6% expansion in its operating margins for 1QFY08. This was largely on the back of lower costs (as percentage of sales) for traded goods purchased. Based on segments, margin expansion was seen in the power, automotive & drives, healthcare and real estate businesses. On the other hand, EBIT margins of the transport segment recorded a sharp fall (see table above).

  • Siemens recorded a 101% YoY growth in standalone bottomline during 1QFY08. The net profits were aided by extraordinary income of Rs 1,246 m as gains from sale of the automotive business and transfer of building technologies business. At the PBT level, where this extraordinary gain does not have an impact, growth stood at 10% YoY during the quarter.

What to expect?
At the current price of Rs 1,634, the stock is trading at a multiple of 24.2 times our estimated FY09 consolidated earnings. We shall soon update our research report factoring in the sale of the abovementioned businesses.

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