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Siemens: Back on the recovery path - Views on News from Equitymaster

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Siemens: Back on the recovery path
Aug 2, 2010

Siemens has announced its 3QFY10 results. The company has reported a 17% YoY and 23% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Sales grow by 17% YoY in 3QFY10 (September ending fiscal).
  • Operating margins contract by 2.7% on account of a significantly higher cost of traded goods, and other expenditure (as percentage of sales).
  • Net profits fall 54% YoY during the quarter owning to extraordinary income during the
  • 3QFY09. Excluding the effect of this income, profits grow by 23% YoY during the quarter, largely due to a lower effective tax rate.


Standalone financial performance
(Rs m) 3QFY09 3QFY10 Change 9mFY09 9mFY10 Change
Sales 19,096 22,349 17.0% 59,067 63,114 6.9%
Expenditure 16,606 20,044 20.7% 51,643 54,788 6.1%
Operating profit (EBDITA) 2,490 2,305 -7.4% 7,424 8,326 12.2%
Operating profit margin (%) 13.0% 10.3%   12.6% 13.2%  
Other income 159 115 -27.8% 2,679 604 -77.5%
Interest expense/(income) (118) (181) 52.5% (377) (486) 28.7%
Depreciation 199 249 25.1% 565 714 26.5%
Profit before tax 2,568 2,351 -8.5% 9,916 8,702 -12.2%
Extraordinary income/(expense) 2,106 -   2,106 -  
Tax 1,304 790 -39.4% 3,091 2,944 -4.7%
Profit after tax/(loss) 3,370 1,561 -53.7% 8,931 5,758 -35.5%
Net profit margin (%) 17.6% 7.0%   15.1% 9.1%  
No. of shares       337.2 337.2  
Diluted earnings per share (Rs)*         21.6  
P/E ratio (x)*         33.4  
* On a trailing 12-months basis

What has driven performance in 3QFY10?
  • Siemens reported 17% YoY growth in sales for 3QFY10, while for 9mFY10 the company saw a 7% rise in sales. Segment wise, a rise in the business volumes of Siemens’ industry healthcare, distribution and oil & gas segments drove the topline growth during the quarter. However, the mobility business was the dampener during 3QFY10 as it saw a 35% YoY fall in sales and contributed 7% to the overall topline.

    Segment-wise performance (Standalone)
      3QFY09 3QFY10    
    (Rs m) Sales % of total PBIT margins Sales % of total PBIT margins Sales growth Margin change
    Industry Automation 1,205 6% 6.6% 1,526 6% 9.3% 27% 2.7%
    Drive Technology 2,360 11% 6.9% 3,156 13% 2.2% 34% -4.8%
    Building Technologies 1,144 5% 3.4% 1,434 6% 0.8% 25% -2.6%
    Industry Solutions 2,331 11% 7.3% 2,923 12% 12.4% 25% 5.2%
    Mobility 2,742 13% 3.7% 1,777 7% 4.2% -35% 0.5%
    Fossil Power Generation 750 4% 12.4% 255 1% 2.0% -66% -10.3%
    Oil and Gas 1,294 6% 18.3% 1,577 6% 1.3% 22% -17.1%
    Power Transmission 5,879 28% 22.1% 8,196 33% 13.7% 39% -8.3%
    Power Distribution 1,901 9% 1.5% 1,980 8% 6.8% 4% 5.3%
    Healthcare 1,137 5% -0.4% 1,926 8% 6.6% 69% 6.9%
    Real Estate 151 1% 115.8% 124 0% 80.4% -18% -35.4%
    Total* 20,892 100.0% 11.4% 24,875 100.0% 8.7% 19.1% -2.7%
    * Excluding inter-segment adjustments

  • Siemens' operating margins contracted to 10.3% from 13% in 3QFY10 on account of significantly higher costs for goods purchased for trading, as also higher other expenditure during the period (as percentage of sales). The drive technology and oil & gas business segments, with a big fall in PBIT margins, contributed towards the overall contraction in margins during the quarter.

  • Siemens' net profits witnessed a fall of 54% YoY during 3QFY10. This was due to a onetime extraordinary gain in the same quarter of last fiscal. On excluding the same, profits grew by 23% during the quarter. For the first nine months, net profits were lower by 35% YoY. However, if one were to remove the extraordinary dividends received by the company from its erstwhile subsidiaries during 9mFY09, profits for the half year period fell by a lesser 16% YoY.

What to expect?
At the current price of Rs 721, the stock is trading at a multiple of 23.4 times our estimated FY12 earnings. Siemens' order backlog as at the end of June 2010 stood at Rs 135 bn, an increase of 34% over last year. The company booked orders worth Rs 94 bn during the nine months, thus registering an increase of 52% YoY over 9mFY09. The company has seen a strong growth in short cycle business (products) over the last nine months of FY10. It also has a robust order backlog from its long cycle projects business which will help the company going forward. However, we continue to maintain a cautious view on the stock (Research Pro subscribers kindly click Here).

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