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Siemens: Awaiting a turn in the capex cycle - Views on News from Equitymaster

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Siemens: Awaiting a turn in the capex cycle

Feb 9, 2015

Siemens has announced its first quarter results of financial year 2015 (September ending fiscal). Here is our analysis of the results.

Performance summary
  • Sales declined by 9% YoY in 1QFY15.
  • The company reported a 42% YoY increase in operating profits in 1QFY15.
  • Operating margins improved from 5.5% YoY in 1QFY14 to 8.6% YoY in 1QFY15.
  • Net profits saw a 873% YoY growth during the quarter on the back of exceptional gains.
  • The company received new orders worth Rs 20.9 bn during the quarter, an increase of 4% YoY.

Standalone financial performance
(Rs m) 1QFY14 1QFY15 Change
Sales 23,605 21,408 -9.3%
Other operating income  334 452 35.3%
Expenditure 22,611 19,970 -11.7%
Operating profit (EBDITA) 1,328 1,890 42.2%
Operating profit margin (%) 5.5% 8.6%  
Finance costs 17 19 10.6%
Other income  76 303 301.6%
Depreciation 564 564 0.1%
Exceptional item 162 7046 -
Profit before tax 985 8,656 778.4%
Tax 334 2,315 593.2%
Profit after tax/(loss) 651 6,340 873.3%
Net profit margin (%) 2.7% 29.0%  
No. of shares   356  
Basic & Diluted earnings per share (Rs)*   32.9  
P/E ratio (x)*   34  
*On a trailing 12-month basis

What has driven performance in 1QFY15?
  • The fall in revenues during the quarter was led by a fall in the revenues of the company's mobility and healthcare business segments.

  • A big fall in raw material costs as a percentage of sales and the cost optimization measures undertaken by the company is what has helped it post an expansion of operating margins during the quarter.

  • Exceptional item for the quarter represents profit on sale of Metals Technologies business to Siemens VAI Metals Techonologies GmbH, Germany, for a consideration of Rs 10.2 bn as a slump sale on a going concern basis.

  • Also, during the quarter, the company has acquired a 100% stake in Siemens Rail Automation Pvt. Ltd. for a consideration of Rs 550 m from Siemens International Holdings BV, Netherlands, and has consequently become a subsidiary of the company.

  • During the quarter, there has also been a re-organisation of businesses across segments.

  • The increase in operating profits as a consequence of higher operating margins, along with a big jump in other income as well as the exceptional gain on the sale of the above mentioned business led to the company posting a large 873% YoY increase in net profits during 1QFY15.

    Segment-wise performance (Standalone)
    (Rs m) 1QFY14 1QFY15 Change
    Power and Gas
    Revenue 4,455 4,494 0.9%
    % share  17.4% 19.3%  
    PBIT margin 20.1% 10.9%  
    Energy Management
    Revenue 6,206 5,832 -6.0%
    % share  24.3% 25.0%  
    PBIT margin 0.6% 5.6%  
    Building Technologies
    Revenue 683 702 2.8%
    % share  2.7% 3.0%  
    PBIT margin 6.8% 7.9%  
    Mobility
    Revenue 2,193 1,784 -18.7%
    % share  8.6% 7.6%  
    PBIT margin 0.4% 5.5%  
    Digital Factory
    Revenue 3,594 3,884 8.1%
    % share  14.1% 16.6%  
    PBIT margin 0.8% 8.3%  
    Process Industries and Drives
    Revenue 3,958 3,612 -8.7%
    % share  15.5% 15.5%  
    PBIT margin 2.1% 2.0%  
    Healthcare
    Revenue 2,493 1,409 -43.5%
    % share  9.8% 6.0%  
    PBIT margin -14.2% 3.9%  
    Metals Technologies
    Revenue 1,876 1,505 -19.8%
    % share  7.3% 6.4%  
    PBIT margin -1.5% -6.9%  
    Others
    Revenue 104 109 4.7%
    % share  0.4% 0.5%  
    PBIT margin 51.4% 38.0%  
    Total Revenue 25,561 23,330  
What to expect?
The management of the company has highlighted how the company's order inflows are greatly dependent on private sector & government's willingness to start capex spending once again which is in turn largely dependent on their confidence on a sustained economic revival in the country and lower interest rates. Thus, a turnaround in the capex cycle still eludes companies from the capital goods sector such as Siemens, and is essential for order inflows and revenues to start looking up once again.

At the current price of Rs 1,105, the stock is trading at 50 times our FY16 earnings estimate for the company. Considering these expensive valuations, re-iterate our SELL rating on the stock.

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