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Siemens buyback: Worth it?

May 7, 2001

Siemens Limited's Board has approved a proposal to buyback its equity shares upto an aggregate sum not exceeding Rs 805 m, at a price not exceeding Rs 250 per share from the open market. The buyback offer is at a 21% premium to the current market price.

(Rs m)2QFY012QFY02Change1HFY011HFY02Change
Net Sales2,725.03,126.314.7%5,001.05,271.35.4%
Other Income218.0112.4-48.4%323.0344.46.6%
Expenditure2,562.02,927.214.3%4,797.05,056.25.4%
Operating Profit (EBDIT)163.0199.222.2%204.0215.15.4%
Operating Profit Margin (%)6.0%6.4% 4.1%4.1% 
Interest 187-62.7%1711-35.3%
Depreciation7675-1.1%158151-4.4%
Profit before Tax268230-14.3%33239920.2%
Tax82-69.6%1512-20.0%
Profit after Tax/(Loss)260227-12.6%31738722.1%
Net profit margin (%)9.5%7.3% 6.3%7.3% 
No. of Shares (eoy) (m)35.535.5 35.535.5 
Diluted earnings per share*29.325.6 17.921.8 
*(annualised)      
Current P/e ratio    9.5 

Siemens India is a 51% subsidiary of German engineering behemoth Siemens AG. In India, Siemens manufactures automation systems, components, medical equipment, motors and drivers, power generating equipment and switchgears. It derives 40-45 percent of revenues from standard products (automation, ancillary equipment). The balance is split between power projects, industrial projects and switchgears.

The stock had surged initially on the news of the buyback. However, the euphoria seems to have died down. This is probably because the premium on the buyback is not very high. Moreover, the company is getting back on track after a restructuring exercise which included pruning the debt burden and a voluntary retirement scheme to cut employee costs.

The company has declared an encouraging 15% growth in turnover in its 2QFY02 (quarter ended March 2001). But a huge 48% decline in its other income has led to a 13% fall in its bottomline during the same period. On a consolidated half yearly basis Siemens has declared a 22% bottomline growth backed by only a 5% growth in turnover. However, during the first half of FY02 the company has been helped by a 7% rise in its other income.

Another reason because of which investors might find the offer unattractive is the fact that it is at a huge 59% discount to Siemens 52 week high (Rs 397). However, another way to look at it is that the Siemens management itself feels that Rs 250 is correct price for its business, and therefore it may be the right time to exit.

But the company's earnings per share (EPS) is likely to improve post the buyback plan and so are its valuations. Currently, the valuations of companies are under pressure. However, when the economy turns and shows signs of a recovery, the valuations are likely to improve for the better.

At Rs 206 the stock trades at a P/e of 9.5x the first half annualised FY02 earnings. At Rs 250 the stock's P/e multiple works out to be 11.5x annualised 1HFY02.

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