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Siemens: Healthy FY03 but…

May 28, 2002

Since January 2002 the stock price of Siemens Limited has shot up by nearly 50%. Siemens is a leading electrical and electronics company, is the flagship of the Siemens Group in India. The reasons for this flare up are not hard to find.

(Rs m) 2QFY02 2QFY03 Change 1HFY02 1HFY03 Change
Net Sales 3,126 3,576 14.4% 5,373 6,255 16.4%
Other Income 32 79 146.5% 104 194 87.4%
Expenditure 2,927 3,202 9.4% 5,048 5,701 12.9%
Operating Profit (EBDIT) 199 374 88.0% 324 554 70.7%
Operating Profit Margin (%) 6.4% 10.5%   6.0% 8.9%  
Interest income (net) 74 20 -72.7% 121 55 -54.4%
Depreciation 75 78 3.4% 151 142 -6.1%
Profit before Tax 230 395 72.2% 398 661 66.0%
Tax 2 144 5819.3% 12 205 1551.3%
Profit after Tax/(Loss) 227 252 10.7% 386 456 18.2%
Net profit margin (%) 7.3% 7.0%   7.2% 7.3%  
No. of Shares (eoy) (m) 35.5 33.1   35.5 33.1  
Diluted Earnings per share* 27.4 30.4   23.3 27.5  
*(annualised)            
Current P/e ratio   9.4     10.4  

The company reported a 16% topline growth in the first half of the current year. Backed by a higher other income and improved operating margins, the company reported a 66% growth in profit before tax. However, higher tax provisioning pruned its net profit growth to 18% YoY.

Siemens received orders worth Rs 6,045 m during 1HFY03, as compared to Rs 5,487 m orders received in 1HFY02. The unexecuted order value stood at Rs 7,601 m on April 1, 2002. Based on this, we can safely say that the company will do well in terms of turnover growth in FY03.

Siemens was in the red only a few years back (1997 and 1998). High interest burden and lack of focus were major contributors to the decline in its fortunes. To improve its performance, the company put a restructuring plan in place, which aimed at identifying and concentrating on the company’s core competence and reducing its debt levels.

In FY02, the company initiated a buyback offer wherein it managed to acquire 2.4 m equity shares at an average price of over Rs 197 levels. So the company has improved its operations over the last few years. Also, the government's focus on T&D reforms in its power policy will help the company.

Cost break-up
(Rs m) 2QFY02 2QFY03 Change 1HFY02 1HFY03 Change
Raw material 2,005 2,432 21.3% 3,397 4,146 22.1%
Staff 434 293 -32.5% 800 656 -18.0%
Others 488 477 -2.3% 852 898 5.5%
Total expenditure 2,927 3,202 9.4% 5,048 5,701 12.9%

However, if we look closely, had it not been for higher other income, Siemens may have finished the the first half with no growth in profits. Infact, Siemens earned Rs 69 m as extraordinary income by selling some investments during 1HFY03.

Therefore, though the company looks in a much better shape, its ability to percolate topline gains to the bottomline continue to be a concern. At Rs 285 the stock trades at 10x its annualised 1HFY03 earnings.


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