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Siemens: A preview - Views on News from Equitymaster
 
 
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  • Oct 20, 2003

    Siemens: A preview

    Engineering major, Siemens Limited, is expected to come out with its annual numbers soon. In this article we have looked at the 9 months results of the company for the last three years and tried to gauge the future performance of the company.

    (Rs m) 9mFY02 9mFY03 9mFY04 % change**
    Net Sales 8,188 9,138 9,877 8.1%
    Other Income 236 213 324 51.9%
    Expenditure 7,773 8,559 9,220 7.7%
    Operating Profit (EBDIT) 415 579 657 13.5%
    Operating Profit Margin (%) 5.1% 6.3% 6.6%
    Interest income (net) 15 87 88 1.1%
    Depreciation 222.3 201 169 -15.9%
    Extra-ordinary income - - 344 -
    Profit before Tax 413 678 1,243 83.3%
    Tax 82 300 384 28.0%
    Profit after Tax/(Loss) 331 577 600 4.0%
    Net profit margin (%) 4.0% 6.3% 8.7%
    No. of Shares (eoy) (m) 35.5 33.1 33.1
    Diluted Earnings per share (Rs)* 12.4 23.2 34.6

    *annualized, **9mFY04 upon 9mFY03

    In 9MFY04 the companyís topline grew by around 8% but bottomline has improved significantly mainly due to increased extra ordinary income. Since revenues for engineering companies are contract based, last quarter contributes to a major chunk of revenues. So we can expect a higher growth in topline in the fourth quarter. For Siemens, historically fourth quarter has been contributing 30% to total revenues. Going by the same trend, the company is likely to show around 10% increase in the topline for FY04.

    Letís have a look at the segmental break up of the revenues for the company.

    Segment Revenue (Rs m) 9mFY03 9mFY04 Change (%)
    Information & Communication 457 561 22.9%
    Automation & Drives 2730 3316 21.5%
    Industrial Solutions & Services 967 1040 7.5%
    Power 2883 2527 -12.4%
    Transport 637 958 50.2%
    Healthcare & Other Services 1756 1996 13.6%
    Real Estate 259 240 -7.3%

    Contribution of automation and drive segment has grown from 28% in 9MFY03 to 31% in 9MFY04. The PBIT margins from this segment are lower at around 5% as compared to its competitor ABB that operates at around 11% in the same segment. Automation is expected to remain a topline growth driver going ahead, as the order backlog from this segment is strong. Also, as Siemens gains experience in this business, its margins are likely to improve and come in line with its peers.

    Contribution of power business has declined from 30% in 9MFY03 to 24% in 9MFY04 mainly due to cancellation of some power orders. However, the PBIT margin from this segment is higher, at around 15% for 9MFY04. In power, since company is into both generation and T&D equipment manufacturing, the growth in Indian power sector causes a lot of optimism.

    Information communication business contributes around 5% to revenues of the company. Siemens is trying to increase the revenues from this segment in India through tie-ups with cellular service providers and is trying to capture the unexplored areas like Rajasthan. Contribution of healthcare business has remained stable at around 18% for the last two years. The medical equipment business is expected to pep up revenues 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, poor margins remain a cause of concern. Unless margins improve, it is likely to be a drag on overall profitability.

    At the current price level of 530, the stock trades at P/E multiple of 15.3x annualised 9MFY04 earnings and the market cap to sales ratio stands at 1.3x. Historically, the last quarter has contributed around 35% of the net profits. Extrapolating the same trend for FY04 estimates, Siemens is trading at a P/E of just of 13x FY04 estimated earnings.

     

     

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