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.
Operating Profit (EBDIT)
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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.
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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