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Siemens: Nothing to worry

Feb 11, 2004

Siemens India reported a mixed performance for the December quarter. The topline of the company grew by 3% YoY. However, the bottomline for the quarter declined by 52%. As shown in the table below the operating and net profit margins of the company declined by almost 50%.

(Rs m) 1QFY04 1QFY05 Change FY04
Net sales 2,985 3,076 3.0% 14,245
Other income 374 196 -47.7% 1,117
Expenditure 2,822 3,005 6.5% 13,277
Operating profit (EBDITA) 163 71 -56.1% 968
Operating profit margin (%) 5.4% 2.3% 6.8%
Interest (31) (24) -23.6% (122)
Depreciation 55 54 -1.5% 230
Profit before tax 513 237 -53.8% 1,978
Tax 168 71 -57.5% 574
Profit after tax/(loss) 345 165 -52.1% 1,404
Net profit margin (%) 11.6% 5.4% 9.9%
No. of shares (m) 33.6 33.6   33.6
Diluted earnings per share (Rs)* 41.1 19.7   41.8
P/E ratio (x)   45.8    
(* annualised)        

The lower growth in topline during 1QFY05 (as Siemens is a September ending company) was due to decline in revenues from its power and healthcare segments. As evident from the table below, the revenues from power business are showing a dip on YoY basis because the December quarter last year includes one time forfeiture of the advance amount of Rs 256 m due to cancellation of an order. Therefore the entire amount forfeited for the orders filtered into PBIT for the segment. Which is also the reason for the segment as well as the company showing good margins in December quarter last year. However, excluding this extraordinary income effect, the operating revenues have actually grown by 13% YoY during 1QFY05. Similarly, excluding the extraordinary income from power revenues of last year. The power business grew by 13% on a like to like basis during the quarter and PBIT margins from the segment actually improved by 200 basis points.

Automation and industrial solution businesses, on the other hand, clocked a stronger 28% and 25% YoY growth respectively. The PBIT margins of these two segments also improved significantly. We believe that the reason for growth in these two segments is the higher industrial activity in the country. Companies are moving towards automation in order to improve their operating efficiencies. We believe that these two segments will continue showing good growth numbers going forward.

1QFY04 1QFY05 Change FY04
Information and communitcation 171 164 -4.2% 818
Automatyion and drives 958 1,230 28.3% 4,640
Induatrial solutions and services 288 360 24.7% 1,563
Power 866 689 -20.5% 3,463
Transport 293 335 14.4% 1,285
Healthcare and other services 527 429 -18.8% 3,086
Real estate 79 88 11.7% 345

Healthcare business continues to be a cause of worry for the company as revenues from this segment declined by around 19% during the quarter. The losses of this segment at PBIT level have actually doubled as compared to December quarter last year. However, the management is hopeful of achieving 5% PBIT margins from this segment by the end of FY05.

The information and communication business of the company showed substantial improvement at PBIT level. However, revenues from this segment declined by 4% during the quarter. The company has launched new mobile handsets in this segment to capture a larger market share.

The order inflow for the company grew by 124% YoY to Rs 9113 m during the quarter. With this, the order book size of the company has increased to Rs 15.2 bn, which is around 1.1x FY04 revenues. Major contributions to this huge order inflow has come from power, transportation and automation drive business.

At the current price level of Rs 900 the stock trades at P/E ratio of 45.8x annualised 1QFY05 earnings. Though valuations look stretched on first quarter result basis, we should remember that the first quarter in not a true representative of the company¬'s annual performance because the revenues and profits increase at faster rate as and when the orders start getting executed. On consolidated FY04 earnings, the stock trades at a P/E of 16.7x. The growth prospects of the company¬'s core businesses like automation, power, industrial and transportation business are good.

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