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Siemens: Concerns over working capital
Feb 6, 2013

Siemens has announced the first quarter results of financial year 2013 (September ending fiscal). The company has reported 0.8% YoY decline in sales. However, net profits have increased 21.4% YoY during the quarter. Here is our analysis of the results.

Performance summary
  • Sales decline by 0.8% YoY in 1QFY13.
  • Operating margins increase 200 bps YoY to 6.5% in 1QFY13 from 4.5% in 1QFY12 on account of 2.6% YoY fall in operating expenditure.
  • Amidst strong performance at the operating level, net profits increase 21.4% YoY.
  • The company registered an order inflow of Rs 19.9 bn during the quarter.
  • Amalgamation of Siemens Power Engineering Pvt Ltd (SPEL), a 100% subsidiary of the company, concluded during the quarter.

Financial snapshot
(Rs m) 1QFY12 1QFY13 Change
Sales 24,709 24,509 -0.8%
Other operating income  295 348 17.8%
Expenditure 23,872 23,241 -2.6%
Operating profit (EBDITA) 1,132 1,616 42.7%
Operating profit margin (%) 4.5% 6.5%  
Finance costs 30 47 59.5%
Other income  235 84 -64.4%
Depreciation 445 561 26.2%
Profit before tax 893 1,091 22.2%
Tax 291 361 23.8%
Profit after tax/(loss) 602 731 21.4%
Net profit margin (%) 2.4% 2.9%  
No. of shares   352  
Basic & Diluted earnings per share (Rs)   2.1  
P/E ratio (x)*   63  
*On trailing 12-month basis

What has driven performance in 1QFY13?
  • Siemens reported a 0.8% YoY decline in sales during 1QFY13. Except for healthcare segment which registered 11% YoY growth, sales from all the other three segments declined. Sales from the infrastructure and cities segment declined 2% YoY while that from the industry segment declined 3% YoY. On the other hand, revenues from the energy segment declined 2% YoY. It may be noted that amalgamation of SPEL concluded during the quarter. As a result, the performance of SPEL is consolidated into the results under energy segment.

    Segment-wise performance (Standalone)
      1QFY12 1QFY13  
    (Rs m) Sales % of total PBIT margins Sales % of total PBIT margins Sales growth Margin change
    Continuing operations
    Infrastructure & Cities  6,346 24% 6.1% 6,249 24% 0.0% -2% -6.1%
    Energy  9,480 36% -0.4% 9,264 35% 4.2% -2% 4.5%
    Industry  8,712 33% 1.2% 8,481 32% 5.3% -3% 4.1%
    Healthcare 2,020 8% -1.9% 2,244 9% 4.6% 11% 6.5%
    Total* 26,559 100.0% 1.6% 26,237 100.0% 3.6% -1.2% 2.0%

  • Siemens' operating margins increased to 6.5% in 1QFY13 from 4.5% in 1QFY12. This was mainly due to fall in raw material cost (after adjusting for inventory changes and stock in trade) as a percentage of sales. The total raw material cost declined from 78.4% in 1QFY12 to 72.8% in 1QFY13. However, employee cost and other expenditure increased from 11.0% and 7.2% in 1QFY12 to 13.9% and 8.1% in 1QFY13 respectively (all as a percentage of sales).

  • The net profits of the company increased 21.4% YoY. Strong performance at the operating level led to a healthy growth in bottom line. The net margins stood at 2.9% for the quarter as compared to 2.4% in 1QFY12.

What to expect?
At the current price of Rs 636, the stock is trading at a multiple of 63 times its trailing twelve month earnings. However, the high multiple should be seen in the context of impairment and provisioning losses that were incurred in the past which impacted earnings adversely.

The current quarter performance was a mixed one. While topline growth was muted margins registered a sharp rebound. However, there are concerns on working capital front. The capital employed from all the four segments has increased compared to last quarter. As far as segmental profitability is concerned, infrastructure & cities registered a sharp fall in margins. The segment reported a loss in the quarter compared to EBIT margins of 6.2% in 4QFY12. However, margins from the Energy segment improved considerably as there could be some benefit flowing in from the merger of SPEL. Also, margins from industry and healthcare segment showed strong improvement. Thus, while margins registered a sharp rebound, considering the expensive valuations and stretched working capital we maintain our SELL view on the stock.

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