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Siemens: On a slow road to recovery - Views on News from Equitymaster
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Siemens: On a slow road to recovery
Aug 25, 2014

Siemens has announced its third quarter results of financial year 2014 (September ending fiscal). Here is our analysis of the results.

Performance summary
  • Sales declined by 10% YoY in 3QFY14.
  • The company reported a 91% YoY increase in operating profits in 3QFY14.
  • Operating margins improved from 1% YoY in 3QFY13 to 2.2% YoY in 3QFY14.
  • Net profits at Rs 130 m for the quarter, compared to a loss in the earlier year.
  • The company received new orders worth Rs 27.4 bn during the quarter, an increase of 5% YoY.

Standalone financial performance
(Rs m) 3QFY13 3QFY14 Change 9mFY13 9mFY14 Change
Sales 25,878 23,187 -10.4% 79,573 73,370 -7.8%
Other operating income  542 557 2.6% 1,364 1,376 0.9%
Expenditure 26,144 23,216 -11.2% 78,485 70,855 -9.7%
Operating profit (EBDITA) 276 528 91.1% 2,452 3,891 58.7%
Operating profit margin (%) 1.0% 2.2%   3.0% 5.2%  
Finance costs 39 25 -35.9% 210 66 -68.5%
Other income  26 262 909.5% 213 415 94.6%
Depreciation 626 570 -9.0% 1,824 1,722 -5.6%
Exceptional item (338)   - (199)   -
Profit before tax (701) 195 - 434 2,519 481.0%
Tax (213) 66 - (14) 855 -
Profit after tax/(loss) (488) 130 - 448 1,664 271.7%
Net profit margin (%) -1.8% 0.5%   0.6% 2.2%  
No. of shares         356  
Basic & Diluted earnings per share (Rs)*         8.9  
P/E ratio (x)*         95  
*On a trailing 12-month basis

What has driven performance in 3QFY14?
  • The fall in revenues during the quarter was led by a fall in the revenues of the company's Energy segment and its Infrastructure & Cities segments.

  • A big fall in raw material costs as a percentage of sales is what has helped the company post an expansion of operating margins during the quarter.

  • The increase in operating profits as a consequence of higher operating margins, along with a big jump in other income led to the company posting a net profit of Rs 130 m compared to a loss of Rs 488 m in 3QFY13.

    Segment-wise performance
    (Rs m) 3QFY13 3QFY14 Change 9mFY13 9mFY14 Change
    Infrastructure & Cities
    Revenue 5,935 5,151 -13.2% 18,919 16,841 -11.0%
    % share 21.2% 20.4%   22.0% 21.2%  
    PBIT margin 3.0% 5.2%   2.8% 3.6%  
    Energy
    Revenue 9,403 6,669 -29.1% 28,989 22,630 -21.9%
    % share 33.6% 26.4%   33.8% 28.5%  
    PBIT margin -3.9% -12.2%   -0.4% 3.1%  
    Industry
    Revenue 10,001 9,532 -4.7% 30,197 29,426 -2.6%
    % share 35.8% 37.7%   35.2% 37.1%  
    PBIT margin -1.9% 3.7%   0.0% 2.4%  
    Healthcare
    Revenue 2,615 3,953 51.2% 7,746 10,464 35.1%
    % share 9.4% 15.6%   9.0% 13.2%  
    PBIT margin 1.5% 3.3%   1.1% 0.7%  
    Total Revenue 27,954 25,304   85,851 79,362  
    * Excluding inter-segment adjustments & unallocable operating revenue
What to expect?
While the company's performance has been better than the year ago period, it still continues to be affected by the economic slowdown. The management has communicated that the macro economic situation is still challenging and concrete policy measures are yet to impact the company's business, and will take time to reflect in the operations.

At the current price of Rs 844, the stock is trading at 95 times its trailing twelve month earnings. We are currently in the process reviewing our FY16 estimates for the stock, and shall soon come out with our revised view on the stock based on these. Until then, considering the expensive valuations, we recommend investors not to buy the stock at current levels.

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