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Siemens: Extraordinary income fillip

May 12, 2003

Engineering major, Siemens declared its first half FY04 results recently. The company reported a healthy 13% growth in operating income and finished the first half with a 54% net profit growth. On first glance, the performance does look very encouraging, but let's take a deeper look to find out more.

(Rs m) 2QFY03 2QFY04 Change 1HFY03 1HFY04 Change
Net Sales 3,509 3,897 11.1% 6,112 6,882 12.6%
Other operating income 50 101 101.3% 118 149 25.7%
Total operating income 3,559 3,998 12.3% 6,230 7,031 12.9%
Other Income 79 43 -46.1% 125 114 -9.1%
Expenditure 3,185 3,570 12.1% 5,676 6,392 12.6%
Operating Profit (EBDIT) 374 429 14.7% 554 638 15.3%
Operating Profit Margin (%) 10.5% 10.7%   8.9% 9.1%  
Interest income (net) 20 26 29.1% 55 57 3.1%
Depreciation 78 61 -21.1% 142 116 -18.2%
Profit before Tax 395 436 10.3% 592 693 17.0%
Extraordinary income 0 88 - 69 344 398.6%
Tax 144 164 14.2% 205 333 62.4%
Profit after Tax/(Loss) 252 360 43.0% 456 704 54.3%
Net profit margin (%) 7.1% 9.0%   7.3% 10.0%  
No. of Shares (eoy) (m) 33.1 33.1   33.1 33.1  
Diluted Earnings per share* 30.4 43.4   27.5 42.5  
*(annualised)            
Current P/e ratio   7.6     7.8  

While there is no denying the fact that the company's revenue growth is encouraging against the backdrop of difficult economic environment, its strong bottomline performance is largely a result of one time higher non-recurring incomes. The company's release however, had largely categorised these incomes under the other operating income and other income heads.

Segment revenue snapshot...
(Rs m) 2QFY03 2QFY04 Change 1HFY03 1HFY04 Change
Information & communication 151 186 23.2% 274 357 30.4%
Automation & drives 1,018 1,320 29.6% 1,868 2,278 22.0%
Industrial solutions & services 331 417 25.7% 627 705 12.5%
Power 1,216 948 -22.1% 1,892 1,813 -4.1%
Transport 201 379 88.9% 415 672 61.9%
Healthcare and other services 751 918 22.2% 1,217 1,446 18.8%
Real estate 90 80 -10.4% 174 159 -8.3%
Total 3,758 4,248 13.0% 6,466 7,431 14.9%
Less: Intersegment revenues 250 351 40.5% 354 549 54.8%
Net sales 3,509 3,897 11.1% 6,112 6,882 12.6%

During the six months ended March 2003, Siemens extraordinary income comprised of Rs 250 m as forfeiture of advance received (for a power project), Rs 50 m as profit on sale of its Joka factory, Rs 14 m as compensation received for vacation of property and Rs 24 m as profit on sale of investment in Siemens Metering Ltd. Thus extraordinary income in the first half totals a huge Rs 344 m (almost 49% of 1HFY04 profits). Rs 69 m extraordinary income in 1HFY03 reflects profit on sale of investment.

If we exclude the extraordinary income effect, then Siemens finished 1HFY04 with about 17% growth in profit before tax, which is still healthy. All its business segments, except for power and real estate clocked encouraging growth rates. Automation and drives, which accounts for nearly 30% of its revenues, registered a strong 22% revenue growth in 1HFY04. The segment margins also improved encouragingly to over 5% (from just over 1% earlier).

Though the power segment, which is the second largest revenue contributor (24% of sales), reported a 4% dip in 1HFY04 revenues, operating margins improved to 6.5% (excluding forfeiture of advances). Healthcare and other services, which is the third largest business segment for Siemens (almost 20% of sales), grew revenues by 19% YoY. However, margins for the segment suffered and dipped nearly 133 basis points.

The big picture...
(%) Sales mix Revenue growth PBIT margin (%) Margin growth YoY
(basis points)
Information & communication 4.8% 30.4% 6.8% -405.9
Automation & drives 30.7% 22.0% 5.8% 446.1
Industrial solutions & services 9.5% 12.5% 9.2% 2.6
Power 24.4% -4.1% 20.7% 1698.7
Transport 9.0% 61.9% 15.9% -39.5
Healthcare and other services 19.5% 18.8% 0.3% -133.5
Real estate 2.1% -8.3% 87.6% -457.8
* All figures and ratios pertain to 1HFY04 numbers

Siemens order inflow registered a rise of 30% YoY to Rs 7.9 bn during the six months period ended March 2003. The unexecuted orderbook stood at Rs 7.4 bn at the end of March 2003, which is 0.6x of the company's FY03 sales. The company's transport business registered a healthy 61% growth in revenues and now contributes 9% to the company's sales.

At the current price of Rs 331 the stock trades at 7.8x annualised 1HFY04 earnings. However, excluding extraordinary income, the P/E valuation shoots to 15.2x annualised 1HFY04 earnings. The company's topline growth is encouraging and seeing the strength in the orderbook, we believe that growth is likely to continue going forward. Also, with the passing of the electricity bill the company is likely to see strength in its power business orderbook in the long term.


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