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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)2QFY022QFY03Change1HFY021HFY03Change
Net Sales3,1263,57614.4%5,3736,25516.4%
Other Income3279146.5%10419487.4%
Expenditure2,9273,2029.4%5,0485,70112.9%
Operating Profit (EBDIT)19937488.0%32455470.7%
Operating Profit Margin (%)6.4%10.5% 6.0%8.9% 
Interest income (net)7420-72.7%12155-54.4%
Depreciation75783.4%151142-6.1%
Profit before Tax23039572.2%39866166.0%
Tax21445819.3%122051551.3%
Profit after Tax/(Loss)22725210.7%38645618.2%
Net profit margin (%)7.3%7.0% 7.2%7.3% 
No. of Shares (eoy) (m)35.533.1 35.533.1 
Diluted Earnings per share*27.430.4 23.327.5 
*(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)2QFY022QFY03Change1HFY021HFY03Change
Raw material2,0052,43221.3%3,3974,14622.1%
Staff434293-32.5%800656-18.0%
Others488477-2.3%8528985.5%
Total expenditure2,9273,2029.4%5,0485,70112.9%

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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