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Siemens: Execution gathers pace - Views on News from Equitymaster
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Siemens: Execution gathers pace
Dec 1, 2011

Siemens has announced the full year results of financial year 2011 (FY11). The company has reported 28.2% YoY growth in sales while net profits have increased 2.2% YoY during the year. Here is our analysis of the results.

Performance summary
  • Sales grow by 28.2% YoY in FY11 (September ending fiscal).
  • Operating margins decline to 11.1% in FY11 on account of rise in raw material expenses as a percentage of sales.
  • Bottom line increased 2.2% YoY due to modest performance at the operating level. Increase in interest income and other income (profit on sale of subsidiaries) supported profitability in FY11.
  • As of 30 September 2011, the unexecuted order back log of the company stood at Rs 139.2 bn. The company booked orders worth Rs 122.8 bn during the year.
  • The company has recommended a dividend of Rs 6 per share for the year ended September 2011.

Standalone financial performance
(Rs m) FY10 FY11 Change
Sales 93,152 119,419 28.2%
Other operating income 848 1,645 93.9%
Expenditure 81,069 107,568 32.7%
Operating profit (EBDITA) 12,932 13,496 4.4%
Operating profit margin (%) 13.8% 11.1%  
Interest income, net 670 755 12.7%
Other income   21  
Depreciation 1,015 1,522 50.0%
Profit before tax 12,587 12,750 1.3%
Tax 4,315 4,295 -0.5%
Profit after tax/(loss) 8,272 8,454 2.2%
Net profit margin (%) 8.8% 7.0%  
No. of shares   340.3  
Basic & Diluted earnings per share (Rs)   24.8  
P/E ratio (x)*   28.2  
* On a trailing 12 months basis

What has driven performance in FY11?
  • Siemens reported 28.2% YoY growth in sales during FY11. Rise in the business volumes of Siemens' Oil & Gas, Fossil Power generation and Building Technologies segments drove the topline during the quarter. However, the performance of Industry solutions and Mobility segments was a bit of a disappointment.

    Segment-wise performance (Standalone)
      FY10 FY11    
    (Rs m) Sales % of total PBIT margins Sales % of total PBIT margins Sales growth Margin change
    Continuing operations
    Industry Automation 6,777 7% 9.3% 8,691 7% 7.8% 28% -1.6%
    Drive Technology 13,772 13% 7.9% 15,930 12% 6.5% 16% -1.4%
    Building Technologies 5,794 6% 4.0% 9,469 7% 5.0% 63% 1.0%
    Industry Solutions 11,890 11% 9.2% 11,592 9% 4.8% -3% -4.5%
    Mobility 10,208 10% 8.4% 7,530 6% 15.8% -26% 7.4%
    Fossil Power Generation 1,295 1% 30.9% 5,358 4% 10.3% 314% -20.6%
    Oil and Gas 7,044 7% 13.3% 14,208 11% 14.0% 102% 0.7%
    Power Transmission 29,225 28% 17.8% 34,009 26% 11.6% 16% -6.1%
    Power Distribution 9,506 9% 5.6% 11,549 9% 5.2% 21% -0.4%
    Healthcare 7,537 7% 6.9% 10,479 8% 4.9% 39% -2.0%
    Real Estate 536 1% 80.8% 605 0% 70.4% 13% -10.4%
    Total* 103,584 100.0% 11.5% 129,420 100.0% 9.3% 24.9% -2.3%
    * Excluding inter-segment adjustments

  • Siemens' operating margins declined to 11.1% in FY11 from 13.8% in FY10 on account of rise in raw material expenses (including stock adjustments and purchase of traded goods) as a percentage of sales. The Drive Technology, Fossil Power generation, Power Transmission and Healthcare segments with a big fall in PBIT margins, contributed towards the overall margin erosion during the quarter.

  • Siemens' net profits witnessed a growth of 2.2% YoY during FY11. Rise in interest income and other income supported the profitability growth.

What to expect?
At the current price of Rs 701, the stock is trading at a multiple of 18.7 times our estimated FY13 earnings. Slowdown in order inflows and prevailing issues in the power sector continue to be a major overhang on the stock. While Siemens can emerge as a good play once there is a recovery in industrial capex, considering the expensive valuations and order inflow concerns, we continue to maintain our negative view on the stock.

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