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Siemens: India Vs International

Sep 18, 2003

Formed in 1847, Siemens AG, with current revenues of around 84 bn Euro, is one of the largest engineering conglomerates in the world. With the merger of three companies (Siemens & Halske, Siemens-Schuckertwerke AG, and Siemens-Reiniger-Werke AG) in 1966, the company came into its current shape. The company has operations in nearly 190 countries with an employee force of around 4.3 m. Siemens AG has a wide array of products, systems and services. Its key focus areas are information and communications, automation and control, power and infrastructure, medical solutions, transportation and lighting. In information and communication business, the company provides communication networks and mobile communication equipments. In automation, the company provides process automation solutions, sensors and metering equipments etc. It includes industrial solutions and services also. Its power division is into manufacturing and installation of power generation and T&D equipments. Apart from this, company is into medical services mainly providing hearing equipments and other automated operating equipments. The companyís transportation business mainly focuses on railway automation. It has presence in real estate and lighting business too.

The Indian subsidiary has also organised its business more or less in line with the parent company. Business profile of Siemens India.

Segmental break-up of the revenues
(Rs M) Siemens India Siemens International
Information and communication 5.3% 25.7%
Automation & Drives 31.2% 24.5%
Industrial solutions & services 9.8% 6.4%
Power 23.8% 23.7%
Transport 9.0% 7.3%
Health care & other services 18.8% 11.5%
Real estate 2.3% 0.9%

Information communication business contributes a major chunk to Siemens AGís revenues, as against 5% for the domestic subsidiary. However, Siemens India is trying to increase the revenues from this segment in India through tie-ups with cellular service providers. Currently, this segment earns PBIT margins of 7% for Siemens India as compared to Euro 292 m losses for the parent.

Automation business forms around 25% of the parentís revenues. But for the domestic entity, the contribution is higher at over 31%. However, in terms of PBIT margins Siemens AG stands better at 9.3% as compared to 4.8% for the domestic company. The Indian subsidiary has got large orders from this segment and expects the margins to improve going forward.

Power business contributes around 24% of the revenues for both for Siemens AG and Siemens India. Margins from this segment are also similar (14% for domestic and 15% for parent). We expect this segment to be the key bottomline driver in future for Siemens India. Since the company is both into generation and T&D business, the order intake for the Indian subsidiary is expected to grow going ahead. However, the parent company has seen a 25% decline in orders owing to lower demand globally.

The revenues from medical equipment segment have declined marginally for the parent company during 9mFY04. However, for Siemens India this segment brings good news as the parent company proposes to make India a manufacturing hub for medical equipment primarily for exports to Asian countries. Though this move could enhance the topline figure for the domestic company, poor margins remain a cause of concern.

Letís have a look at the geographical break-up of Siemens AGís revenues.

Share of international business in the parentís revenue pie has gone up from 75% in FY01 to 80% in FY03. The revenue from Asia-Pacific region has declined marginally mainly due to decline in the revenues from China subsidiary. However, China remains the largest contributor of revenues from this region till date accounting for around 4% of the total revenues. Siemens India contributed little more than 0.3% to the total revenues of the group in FY03.

(9m FY04) Siemens India Siemens International
(Rs m) (Euro m)
Net Sales 10,638 54,455
Orders received 8,347 56,444
EPS* 34.6 2.6
P/E 12.1 21.9
Market Cap/ Sales 1.0 0.7
*annualised

At the current price of 420, the domestic stock trades at the P/E multiple of 12.1x, annualised 9mFY04 earnings. The Indian subsidiary has performed better than the parent company during 9mFY04 and the orderbook size has also increased, where as the order intake for the parent actually decreased during 9mFY04. However, the orderbook to sales ratio for the parent company is higher at 1x as compared to 0.8x for the Indian subsidiary. Looking at the business opportunities available, the scenario looks positive for the domestic company.


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