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Siemens: Power transmission leads growth momentum - Views on News from Equitymaster
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Siemens: Power transmission leads growth momentum
May 14, 2011

Siemens has announced the second quarter results of financial year 2010-2011 (2QFY11). The company has reported 37.1% YoY and 53.3% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Sales grow by 37.1% YoY in 2QFY11 (September ending fiscal).
  • Operating margins rise to 14.7% in 2QFY11 on account of fall in other expenditure as a percentage of sales.
  • Bottom line increased 53.3% YoY due to strong performance at the operating level and increase in interest income partially offset by higher depreciation expenses.
  • As of 31 March 2011, the unexecuted order back log of the company stood at Rs 154.1 bn. During the quarter the company registered an order inflow of Rs 32.9 bn.

Standalone financial performance
(Rs m) 2QFY10 2QFY11 Change 1HFY10 1HFY11 Change
Sales 22,124 30,337 37.1% 40,795 55,997 37.3%
Other operating income  137 845 518.5% 489 967 97.9%
Expenditure 19,400 26,733 37.8% 34,744 48,802 40.5%
Operating profit (EBDITA) 2,861 4,449 55.5% 6,540 8,162 24.8%
Operating profit margin (%) 12.9% 14.7%   16.0% 14.6%  
Interest income, net  117 135 15.1% 275 417 51.4%
Depreciation 237 349 47.1% 465 678 46.0%
Profit before tax 2,741 4,234 54.5% 6,351 7,900 24.4%
Tax 930 1,458 56.7% 2,155 2,677 24.3%
Profit after tax/(loss) 1,811 2,777 53.3% 4,196 5,223 24.5%
Net profit margin (%) 8.2% 9.2%   10.3% 9.3%  
No. of shares         340.3  
Diluted earnings per share (Rs)         15.4  
P/E ratio (x)*         32.0  
* On a trailing 12-months basis

What has driven performance in 2QFY11?
  • Siemens reported 37.1% YoY growth in sales during 2QFY11. Rise in the business volumes of Siemens' Oil & Gas, Fossil power generation and Power transmission segments drove the topline during the quarter. However, the performance of Industrial solutions, Mobility and Real estate segments was a bit of a disappointment.

    Segment-wise performance (Standalone)
      2QFY10 2QFY11    
    (Rs m) Sales % of total PBIT margins Sales % of total PBIT margins Sales growth Margin change
    Continuing operations
    Industry Automation 1,701 7% 4.1% 2,177 6% 9.8% 28% 5.7%
    Drive Technology 3,573 14% 3.0% 4,644 14% 7.1% 30% 4.1%
    Building Technologies 1,577 6% 3.1% 2,355 7% 4.5% 49% 1.4%
    Industry Solutions 3,093 13% 8.2% 2,729 8% 9.7% -12% 1.6%
    Mobility  2,812 11% 11.1% 1,408 4% 15.7% -50% 4.6%
    Fossil Power Generation  284 1% 58.2% 1,356 4% 16.4% 378% -41.7%
    Oil and Gas  1,656 7% 8.4% 3,631 11% 15.8% 119% 7.4%
    Power Transmission 5,902 24% 19.8% 9,629 29% 14.7% 63% -5.1%
    Power Distribution  2,316 9% 8.2% 2,932 9% 10.4% 27% 2.2%
    Healthcare 1,678 7% 4.4% 2,565 8% 9.8% 53% 5.5%
    Real Estate 131 1% 74.7% 131 0% 149.0% 0% 74.3%
    Total* 24,723.25 100.0% 10.6% 33,556.76 100.0% 12.2% 35.7% 1.6%
    *Excluding inter-segment adjustments

  • Siemens' operating margins increased to 14.7% in 2QFY11 from 12.9% in 2QFY10 on account of fall in other expenditure as a percentage of sales during the quarter. The Industry automation, Drive technology, and Oil & gas business segments, with a big rise in PBIT margins, contributed towards the overall margin expansion during the quarter.

  • Siemens' net profits witnessed a rise of 53.3% YoY during 2QFY11. Net profit growth was driven by strong performance at the operating level and increase in interest income. This was partially offset by rise in depreciation expenses which increased 47.1% YoY.

What to expect?
At the current price of Rs 878, the stock is trading at a multiple of 22 times our estimated FY13 earnings. Considering expensive valuations, we continue to maintain a cautious view on the stock (Research Pro subscriber's kindly click here).

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