Siemens: Other income will save FY00 - Views on News from Equitymaster

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Siemens: Other income will save FY00

Aug 22, 2000

Siemens one of India's major engineering companies is all set declare its annual results on September 30, 2000. So lets take a look at what the future holds for it. 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, ancilliary equipment). The balance is split between power projects, industrial projects and switchgears. Thus about 70% of revenues are vulnerable to economic fluctuations.

The company suffered losses in FY97 and FY98, as it was plagued by very high interest costs. By FY99 however, the company managed to reduce its interest burden, but its turnover became more or less stagnant. In FY99, the company managed to report a profit largely aided by its other income.

Taking its first three quarters till June 2000 this year as base, we estimated the company's FY2000 results. The results again reiterate Siemens dependence on the other income to save the day.

(Rs m) FY99 FY00E Change
Sales 10,834 9,590 -11.5%
Other Income 512 813 58.8%
Expenditure 10,222 9,415 -7.9%
Operating Profit (EBDIT) 612 175 -71.4%
Operating Profit Margin (%) 5.6% 1.8%  
Interest 283 34 -88.0%
Depreciation 460 316 -31.3%
Profit before Tax 381 638 67.5%
Tax 30 42 40.0%
Profit after Tax/(Loss) 351 596 69.8%
Net profit margin (%) 3.2% 6.2%  

Its FY2000 turnover looks set to take a hit of around 12%. Other income is likely to surge by around a whopping 60%. As a result, its operating profit has shrunk, but its net profit has surged.

Valuation Statistics
No. of Shares (eoy) (m) 28.4 35.5
Diluted number of shares (m) 35.5 35.5
Diluted Earnings per share* 9.9 16.8
*(annualised)    
P/E Ratio (based on current price) 35.9 21.1

Based on the current price of Rs 355, the stock is available at 21 times its FY2000 expected earnings. The company historically trades at a P/E multiple of 35 to 40 times its earnings. From this perspective the stock looks attractive, but so do many of the leading old economy stocks.

Siemens turnover is in the stagnant phase. Until its turnover treads the growth path, prospects do not look too bright. But, if investment in power sector picks up the company is likely to benefit from this. Also, Siemens industrial automation division is one of the potential high growth areas. But until that clicks, its the same old story.


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