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Siemens: Problems persist

Jul 19, 2001

Siemens India Limited has recorded a 49% decline in its 3QFY02 net profit to Rs 76 m. This was despite a 22% growth in the company's topline. Higher taxes were the primary cause of this depressed bottomline in the 3QFY02.

(Rs m) 3QFY01 3QFY02 Change 9m FY01 9m FY02 Change
Net Sales 2,316 2,815 21.5% 7,317 8,086 10.5%
Other Income 143 132 -8.2% 466 476 2.1%
Expenditure 2,204 2,725 23.7% 7,001 7,782 11.1%
Operating Profit (EBDIT) 112 89 -20.3% 316 305 -3.7%
Operating Profit Margin (%) 4.8% 3.2%   4.3% 3.8%  
Interest 9 4 -55.2% 26 15 -42.2%
Depreciation 79 71 -9.8% 237 222 -6.2%
Profit before Tax 168 146 -13.1% 520 543 4.5%
Tax 20 70 250.0% 35 82 134.3%
Profit after Tax/(Loss) 148 76 -48.7% 485 461 -4.8%
Net profit margin (%) 6.4% 2.7%   6.6% 5.7%  
No. of Shares (eoy) (m) 35.5 35.5   35.5 35.5  
Earnings per share* 16.6 8.5   18.2 17.3  
Diluted Earnings per share* 16.6 8.5   18.2 17.3  
*(annualised)            
Current P/e ratio   23.3     11.5  

Siemens India is a 51% subsidiary of German engineering behemoth Siemens AG. In India, Siemens manufactures automation systems, components, medical equipment, motors and drivers, power generating equipment and switchgears. It derives 40-45% of revenues from standard products (automation, ancillary equipment). The balance is split between power projects, industrial projects and switchgears.

The company's expenditure grew at a faster clip than sales and thus resulted in a 160 basis point decline in operating margins during the quarter. Siemens tax provisioning went up by 250% during the quarter. The profit before taxes declined by only 13%, but the taxes hit Siemens hard. The company has not explained the reason for this sudden tax jump.

On a consolidated nine month period, Siemens recorded an 11% growth in topline and a marginal decline of 5% in bottomline. Here too, the company bore the brunt of tax effect.

To Siemens credit the company's debt pruning exercise led to lower interest burden. Its depreciation provisioning has also come down.

The Siemens board approved a proposal to buyback equity shares from the open market not exceeding 25% of the existing paid-up capital of the company, at a buy back price not exceeding Rs 250 per share and a buy back consideration not exceeding Rs 805 m. The maximum buyback offer price is at a 26% premium to the current market price.

At the current price of Rs 199 the stock trades at a P/E multiple of 12 times its nine month annualised FY02 earnings, which is on the lower side. But given the company's topsy turvy performance in each quarter, the uncertanity in the minds of investors is likely to continue. The company has shown promise by retiring its debt and by initiating a VRS scheme. But unless the company shows steady topline and bottomline growth, valuations are unlikely to go anywhere but up.


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