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Siemens: Strong operating performance - Views on News from Equitymaster

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Siemens: Strong operating performance
May 9, 2014

Siemens has announced the second quarter results of financial year 2014 (September ending fiscal). The company has reported 8.6% YoY decline in sales while net profits have increased by 195% YoY during the quarter. Here is our analysis of the results.

Performance summary
  • Sales decline by 8.6% YoY in 2QFY14.
  • The company reported operating margins of 6.9% in 2QFY14; as compared to just 2.1% during the corresponding quarter of the previous year.
  • Net profits of the company increased by 195% YoY.
  • The company registered an order inflow of Rs 26.2 bn during the quarter (decline of 6.6% Y-o-Y).
  • Order book at the end of 1HFY14 stood at Rs 122 bn (down 5.8% YoY)

Standalone financial performance
(Rs m) 2QFY13 2QFY14 Change 1HFY13 1HFY14 Change
Sales 29,077 26,577 -8.6% 53,696 50,183 -6.5%
Other operating income 478 486 1.6% 822 820 -0.3%
Expenditure 28,942 25,201 14.8% 52,348 47,646 9.9%
Operating profit (EBDITA) 614 1,863 203.4% 2,170 3,356 54.7%
Operating profit margin (%) 2.1% 6.9%   4.0% 6.6%  
Finance costs 84 24 -71.7% 170 41 -76.1%
Other income 125 88 -29.8% 194 160 -17.2%
Depreciation 610 588 -3.6% 1,198 1,152 -3.8%
Exceptional item 139 0   139    
Profit before tax 184 1,338 626.1% 1,135 2,324 104.8%
Tax (115) 456 - 199 790 296.9%
Profit after tax/(loss) 299 883 194.7% 936 1,534 63.9%
Net profit margin (%) 1.0% 3.3%   1.7% 3.0%  
No. of shares         356  
Basic & Diluted earnings per share (Rs)         4.3  
P/E ratio (x)*         95  
* On a trailing 12-months basis

What has driven performance in 2QFY14 and 1HFY14?
  • Siemens' sales declined by 8.6% YoY as a result of slow execution in Energy and Industry segments (contributing around 70% to the revenues).

  • The operating profits of the company rose by a whopping 203% YoY. Siemens was able to improve operating margin by 4.8% to 6.9% this quarter. The increase in margin was on account of execution of high-margin orders and cost control.

  • The company has witnessed sharp increase in EBIT margins in Energy, Industry and Healthcare segments.

  • The net profits of the company increased by 194.7% YoY. The increase in net profit was largely on account of good operating performance. In addition, the company was able to contain its finance and depreciation cost.

  • For 1HFY14, sales declined by 6.5% YoY. EBITDA grew by 54.7% YoY and operating margins were at 6.6% (an increase of 2.6% YoY). Profit after tax grew by 63.9% YoY.

    Segment wise performance
    (Rs m) 2QFY13 2QFY14 Change 1HFY13 1HFY14 Change
    Infrastructure & Cities
    Revenues 5,360 5,555 4% 12,984 11,691 -10%
    % share 20% 22%   22% 22%  
    PBIT margins 7% 5%   3% 3%  
    Energy
    Revenues 9,329 8,261 -11% 19,586 15,962 -19%
    % share 35% 32%   34% 29%  
    PBIT margins -1% 6%   1% 9%  
    Industry
    Revenues 9,480 9,198 -3% 20,196 19,894 -1%
    % share 36% 36%   35% 37%  
    PBIT margins -2% 3%   1% 2%  
    Healthcare
    Revenues 2,244 2,493 11% 5,131 6,511 27%
    % share 8% 10%   9% 12%  
    PBIT margins 1% 10%   3% -1%  
    Others
    Revenues 109 104 -4% 251 212 -15%
    % share 0% 0%   0% 0%  
    PBIT margins 46% 38%   81% 61%  
    Total*
    Revenues 26,521 25,611 -3% 58,147 54,270 -7%
    * Excluding inter-segment adjustments & unallocable operating revenue
What to expect?
Siemens' earnings growth has been very impressive this quarter. We believe the company shall be able to maintain its operating margins in the coming quarters as well. We have factored the same in our valuations. However, business scenario still remains sluggish. According to the company's management, industrial capex across sectors such as steel, power generation and transmission as well as infrastructure such as airports, ports and railways remain weak. Apart from affecting order inflow, lack of funds at the clients' side can also delay execution of ongoing projects. Also, YoY decline in order inflow and order book despite a lower base of previous year will continue to slow down the sales growth.

At the current price of Rs 671, the stock is trading at a multiple of 49.7 times its FY15 earnings. Considering the expensive valuations; we maintain our Sell view on the stock.

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