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Siemens: Other income kicker - Views on News from Equitymaster

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Siemens: Other income kicker
Feb 5, 2009

Performance summary
  • Standalone sales grow decline 15% YoY in 1QFY09 (fiscal year ends September), on the back of 49% YoY and 21% YoY decline in sales of its power transmission and oil & gas businesses respectively.
  • Operating margins expand by 2% YoY during the quarter, aided by lower costs of raw materials consumed (as percentage of sales).
  • Bottomline sees a 67% YoY surge, aided by a substantial increase in other income due to dividend income from Siemens Information Systems and Siemens Information Processing Systems.


Standalone financial performance
(Rs m) 1QFY08 1QFY09 Change
Sales 19,144 16,289 -14.9%
Expenditure 17,647 14,697 -16.7%
Operating profit (EBDITA) 1,497 1,593 6.4%
Operating profit margin (%) 7.8% 9.8%  
Other income 66 2,342 3447.0%
Interest expense/(income) (131) (165) 26.0%
Depreciation 150 181 20.2%
Profit before tax 1,543 3,919 153.9%
Extraordinary income/(expense) 1,246 - -100.0%
Tax 819 613 -25.2%
Profit after tax/(loss) 1,971 3,306 67.8%
Net profit margin (%) 10.3% 20.3%  
No. of shares   337.2  
Diluted earnings per share (Rs)*   21.6  
P/E ratio (x)*   9.3  
* On a trailing 12-months basis

What has driven performance in 1QFY09?
  • Siemens reported a 15% YoY decline in sales during 1QFY09. This was mainly due to a 49% YoY decline in the sales of power transmission business which accounted for about 21% of total sales. Further, sales of the oil and gas business which accounted for 5% of total sales, declined by 21% YoY. Also, 1QFY08 had sales of about Rs 232 m from operations later discontinued. Excluding the effect of those sales, sales for 1QFY09 have declined by about 14% YoY.

    Segment-wise performance (Standalone)
    (Rs m) Sales % of total PBIT margins Sales % of total PBIT margins Sales growth Margin change
    Continuing operations                
    Industry Automation 2,031 9.9% 6.5% 2,145 11.8% 7.7% 5.6% 1.1%
    Drive Technology 2,193 10.7% 5.8% 2,448 13.5% 5.2% 11.6% -0.6%
    Building Technologies 192 0.9% 4.6% 147 0.8% -1.8% -23.3% -6.4%
    Industry Solutions 2,144 10.5% 11.7% 2,237 12.3% 11.3% 4.3% -0.5%
    Mobility 1,478 7.2% -9.2% 2,237 12.3% -2.9% 51.3% 6.3%
    Fossil Power Generation 675 3.3% -6.1% 885 4.9% 6.9% 31.2% 13.0%
    Oil and Gas 1,178 5.8% 8.0% 930 5.1% 12.2% -21.1% 4.2%
    Power Transmission 7,596 37.2% 9.8% 3,881 21.3% 14.6% -48.9% 4.9%
    Power Distribution 1,477 7.2% 8.8% 1,968 10.8% 9.2% 33.2% 0.4%
    Healthcare 1,102 5.4% 0.6% 1,171 6.4% -1.0% 6.3% -1.6%
    Real Estate 133 0.7% 65.8% 152 0.8% 87.4% 14.1% 21.6%
    Discontinued Operations 232 1.1% 3.6% - 0.0% NA NA NA
    Total* 20,431 100.0% 6.8% 18,200 100.0% 0.0% -10.9% -6.8%
    * Excluding inter-segment adjustments

    During the quarter, the company sold off its investments in subsidiaries - Siemens Information Systems and Siemens Information Processing Systems, to the parent company Siemens AG. Read more

  • Siemens recorded a 2% expansion in its operating margins during the quarter. This was largely on the back overall decline in costs of raw materials consumed (as percentage of sales). Based on segments, significant PBIT margin expansion was seen the business segments of mobility (transportation), fossil power generation, oil & gas, power transmission and real estate.

  • Siemens recorded a 67% YoY growth in net profits during 1QFY09. The net profits were aided by a huge increase in other income due to dividend income from Siemens Information Systems and Siemens Information Processing Systems, the two companies sold during the quarter.

What to expect?
At the current price of Rs 200, the stock is trading at a multiple of 11.2 times our estimated FY11 earnings. This we believe makes the stock attractive for long term investors. We however maintain a cautious view on the company’s disinvestment plans, whereby it has divested stakes in important subsidiaries to the parent. We shall soon update our research report factoring in the sale of the abovementioned businesses.

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