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Siemens: One-offs escalate profit growth - Views on News from Equitymaster
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Siemens: One-offs escalate profit growth
Nov 27, 2013

Siemens India has announced its fourth quarter and annual results of financial year 2013 (September ending fiscal). The company has reported 2.5% YoY decline in sales while it has reported net profit of Rs 1.5bn during the quarter as compared to a loss in the corresponding quarter of last year. Here is our analysis of the results.

Performance summary
  • Sales declined by 2.5% YoY in 4QFY13.
  • The company reported growth of 76% YoY in operating profit in 4QFY13. Operating margin came in at 5.4% as compared to 2.9% in 4QFY12.
  • Other income for the company increased by just 5.8% YoY.
  • The robust operating income and few exceptional gains helped the company report a profit of Rs 1.5bn this quarter as compared to loss last year.
  • The company has recommended a dividend of Rs 5 per share for this fiscal.

Standalone financial performance
(Rs m) 4QFY12 4QFY13 Change FY12 FY13 Change
Sales 32,694 31,879 -2.5% 127,081 111,452 -12.3%
Other operating income  1,058 710 -32.9% 2,118 2,074 -2.1%
Expenditure 32,757 30,836 -5.9% 120,286 109,320 -9.1%
Operating profit (EBDITA) 995 1,753 76.2% 8,913 4,207 -52.8%
Operating profit margin (%) 2.9% 5.4%   6.9% 3.7%  
Finance costs 66 (21) - 270 189 -29.9%
Other income  126 134 5.8% 575 345 -40.0%
Depreciation 559 678 21.2% 2,010 2,502 24.5%
Exceptional item (1,208) 523 - (1,999) 325 -
Profit before tax (712) 1,752 - 5,209 2,186 -58.0%
Tax (154) 260 - 1,777 246 -86.1%
Profit after tax/(loss) (558) 1,492 - 3,432 1,940 -43.5%
Net profit margin (%) -1.7% 4.6%   2.7% 1.7%  
No. of shares         356  
Basic & Diluted earnings per share (Rs)         5.4  
P/E ratio (x)*         112  
* On a trailing 12-months basis

What has driven performance in 4QFY13 and FY13?
  • In 4QFY13; Siemens recorded 2.5% YoY decline in sales. All its segments reported decline in sales except healthcare; which grew by 14% YoY. Energy segment witnessed the highest decline of 10% in sales amongst all segments.

  • In 4QFY13, better product mix (with higher margins) and cost cutting measures have paid off and consequently, there is an increase of 76% YoY in operating profit of the company.

  • The net charge owing to revised estimated revenue, cost and other provisions declined this quarter as compared to last year's same quarter. There was a charge of about Rs 152m in 4QFY13 as compared to Rs 1.8 bn in 4QFY12. This also helped the operating performance.

  • Siemens reported net profit of Rs 1.5 bn for this quarter as compared to a loss last year. The profit was not only a result of better operating performance but also due to a net exceptional gain of Rs 523m. Exceptional gains of Rs 1.14bn were recorded on account of transfer of its Postal and Parcel Logistics Technologies business to 100% subsidiary of Siemens AG - Postal Parcel & Airport Logistics Pvt ltd. Also, there was exceptional gain of Rs 166 m as the company availed CENVAT credit on certain services. On the other hand, additional one time employee compensation cost and impairment cost led to exceptional losses of Rs 789 m.

  • The adjusted profit therefore stands at Rs 969 m for 4QFY13.

  • Performance for FY13 has been disappointing. For the full year, the sales for the company declined by 12.3% YoY. Operating profit de-grew by 52.8% YoY. The company's operating margin has declined by 320 bps to 3.7% YoY. Profit for the full year has dropped by 43.5% YoY.

  • The order inflows for 4QFY13 were Rs 35bn (up 24% YoY). The order inflow for the year grew by 7.1% YoY to Rs 109.6bn. The total order book of the company at the end of the year stands at about Rs 135 bn (down 5% YoY)

    Segment-wise performance (Standalone)
    (Rs m) 4QFY12 4QFY13 Change FY12 FY13 Change
    Infrastructure & Cities
    Revenue 8,892 8,734 -1.8% 31,142 30,433 -2.3%
    % share 24.8% 25.3%   22.7% 25.3%  
    PBIT margin 6.2% 9.6%   5.3% 3.9%  
    Revenue 12,082 10,927 -9.6% 52,529 39,916 -24.0%
    % share 33.7% 31.7%   38.3% 33.2%  
    PBIT margin -16.2% 6.0%   4.1% 1.4%  
    Revenue 11,794 11,311 -4.1% 42,681 38,728 -9.3%
    % share 32.9% 32.8%   31.1% 32.2%  
    PBIT margin 4.2% 1.2%   3.8% 0.0%  
    Revenue 3,108 3,551 14.3% 10,815 11,297 4.5%
    % share 8.7% 10.3%   7.9% 9.4%  
    PBIT margin 4.9% 6.8%   0.6% 2.8%  
    Revenue* 35,877 34,523 -3.8% 137,166 120,374 -12.2%
    * Excluding inter-segment adjustments & unallocable operating revenue

    Key analyst meet takeaways

  • Siemens in the analyst meet stated that delays in off take of certain projects from the client side still persist. It also does not expect the situation to turnaround drastically in near future.

  • The company is now cautiously bidding for quality projects where it is reasonably certain that the project will be executed smoothly.

  • The company is also placing more emphasis on cost rationalization as the bidding margins in the new orders have not yet improved considerably.

  • The company also has few slow moving orders in its current order backlog; however there has not been any order cancellation in recent times.

  • Siemens has clearly stated that the robust performance of this quarter cannot be taken as benchmark for the upcoming quarters. Given the sluggish macro environment there may be hiccups in revenues and earnings growth going forward.

  • The provisions that the company has made so far are on account of cost escalations and liquidated damages. The company said at this point of time it is difficult to predict how much of this can be actually reversed once the concerned contracts are completed.
What to expect?
While Siemens' topline has not been very encouraging, its operating performance has improved considerably this quarter. However, as management has conveyed, this cannot be taken as a trend for the upcoming quarters as well. At the current price of Rs 610, the stock is trading at 45 times our estimated FY15 earnings and seems expensive. Since FY13 for the company has ended, we will soon be rolling forward our target price to FY16. Till then, we recommend investors to avoid buying the stock.

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