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Siemens: Positive signals

Nov 23, 2001

Siemens India has reported a 4% YoY growth in net sales during its year ended September 30, 2001. The company's net profit however, has declined by over 18%, as a result of higher taxes and restructuring costs (extraordinary items).

(Rs m) FY01 FY02 Change
Net Sales 11,157 11,573 3.7%
Other Income 572 778 36.1%
Expenditure 10,574 10,962 3.7%
Operating Profit (EBDIT) 583 611 4.7%
Operating Profit Margin (%) 5.2% 5.3%  
Interest 49 17 -65.0%
Depreciation 315 295 -6.5%
Profit before Tax 791 1,078 36.2%
Extraordinary items 155 -113  
Tax 106 277 160.9%
Profit after Tax/(Loss) 840 687 -18.2%
Net profit margin (%) 7.5% 5.9%  
No. of Shares 35.5 33.6  
Diluted Earnings per share* 25.0 20.4  
P/E Ratio   9.6  
*(annualised)      

Siemens India is a 51% subsidiary of German engineering behemoth Siemens AG. In India, 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, ancillary equipment). The balance is split between power projects, industrial projects and switchgears.

The major contributors to the company's turnover growth were transmission & distribution division, automation and the the medical equipment divisions. Infact, Siemens gained market share in the Medical equipment business. Excluding the effect of the extraordinary items (restructuring cost for FY02 - Rs 113 m) as well as the deffered tax of Rs 41 m, Siemens net profit has grown 23% YoY to Rs 841 m, which is very good.

Lower interest burden was a result of the company's debt pruning exercise. A decline in depreciation provision can also be attributed to Siemens' restructuring efforts. Another encouraging sign is the company's more or less stable order book. Siemens received new orders worth Rs 10.8 bn in FY02 as compared to Rs 12 bn worth of orders in FY01 (decline of 10% YoY). However, Siemens management clarifies that it had received a very large order of Rs 1.7 bn in FY01 for high voltage transmission project. Excluding this large order, the new orders have grown by 5% YoY in FY02.

The company continues its bid to improve operating efficiencies. The company has reduced its workforce by 4% to 4,167 employees in FY02. Siemens has also bought back 1.86 m shares at an average price of Rs 197.6 per share, under the recently approved buyback plan. This would also improve the company's earnings per share going forward.

At the current price of Rs 196 the stock trades at nearly 10x its FY02 earnings. The company's FY02 performance has shown promise but unless the steadiness in its performance continues its valuations are likely to remain rangebound.


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