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Siemens: Margins inch higher - Views on News from Equitymaster
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Siemens: Margins inch higher
Jun 23, 2015

Siemens has announced its second quarter results of financial year 2015 (September ending fiscal). Here is our analysis of the results.

Performance summary
  • Sales declined by 2.6% YoY in 2QFY15.
  • The company reported a 34.3% YoY increase in operating profits in 2QFY15 largely due to a 4.7% YoY reduction in operating expenses.
  • Operating margins improved from 7% in 2QFY14 to 9.7% YoY in 2QFY15.
  • Net profits saw a jump of 83.4% YoY in the quarter on the back of exceptional gains, higher other income and lower depreciation charges.

Standalone financial performance
(Rs m) 2QFY14 2QFY15 Change 1HFY14 1HFY15 Change
Sales 26,577 25,889 -2.6% 50,183 47,297 -5.8%
Other operating income 486 641 31.9% 820 1,092 33.3%
Expenditure 25,201 24,028 -4.7% 47,808 43,991 -8.0%
Operating profit (EBITDA) 1,863 2,501 34.3% 3,194 4,398 37.7%
Operating profit margin (%) 7.0% 9.7%   6.4% 9.3%  
Other income 88 360 311.9% 160 656 309.7%
Finance costs 24 13 -46.8% 41 31 -22.7%
Depreciation 588 553 -6.0% 1,152 1,117 -3.0%
Exceptional items - 74   162 7,120  
Profit before tax 1,338 2,371 77.2% 2,324 11,027 374.5%
Tax 456 752 65.1% 790 3,068 288.4%
Profit after tax/(loss) 883 1,619 83.4% 1,534 7,959 418.8%
Net profit margin (%) 3.3% 6.3%   3.1% 16.8%  
No of shares (m)         356.1  
Diluted earnings per share         35.0  
P/E ratio#         39.4  
# On a trailing 12-months earnings basis

What has driven performance in 2QFY15?
  • The segment wise performance was mixed. While the mobility and energy management segments delivered good results, the process and digital segments were under pressure in 2QFY15.
  • The improved operational performance was due to reductions in raw material costs, employee expenses and administrative costs (all on a YoY basis) by 17.6%, 3.5% and 6.4% respectively.
  • The exceptional item represents the adjustment made to the profit on sale of the Metal Technologies business effective 31st December 2014.
  • The improvement in the bottomline in 2QFY15 was on account of the company's cost reduction efforts, lower depreciation charges as well as higher other income in the quarter.

    Segment-wise performance (Standalone)
    (Rs m) 2QFY14 2QFY15 Change
    Power & Gas
    Revenue 3,638 3,188 -12.4%
    % share 13.4% 12.0%  
    PBIT margin (%)      
    Energy Management
    Revenue 7,464 8,224 10.2%
    % share 27.6% 31.0%  
    PBIT margin (%)      
    Building Technologies
    Revenue 720 747 3.7%
    % share 2.7% 2.8%  
    PBIT margin (%)      
    Mobility
    Revenue 1,850 2,587 39.9%
    % share 6.8% 9.8%  
    PBIT margin (%)      
    Digital Factory
    Revenue 4,120 4,000 -2.9%
    % share 15.2% 15.1%  
    PBIT margin (%)      
    Process Industries & Drives
    Revenue 5,118 4,880 -4.7%
    % share 18.9% 18.4%  
    PBIT margin (%)      
    Healthcare
    Revenue 4,018 4,206 4.7%
    % share 14.8% 15.9%  
    PBIT margin (%)      
    Metals Technologies
    Revenue 1,840 - N.A
    % share 6.8% N.A  
    PBIT margin (%)      
    Others
    Revenue 108 154 42.5%
    % share 0.4% 0.6%  
    PBIT margin (%)      
    Total revenue 28,875 27,986 -3.1%
What to expect?
A turnaround in the capex cycle still eludes companies from the capital goods sector such as Siemens, and is essential for order inflows and revenues to start looking up once again. Considering the current sluggish economic environment, the management has expressed its satisfaction with the performance of the company during the quarter.

At the current price of Rs 1,377, the stock is trading at 62.6 times our FY16 earnings estimate for the company. Considering these expensive valuations, we re-iterate our SELL rating on the stock.

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