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Siemens: Dull performance - Views on News from Equitymaster

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Siemens: Dull performance
Dec 2, 2008

Performance summary
  • Standalone sales grow 7% YoY in FY08 (September ending fiscal), mainly led by growth in automation & drives and transport businesses.
  • Operating margins contract by 0.5% YoY in FY08, hurt by higher cost of traded goods (as percentage of sales). On a consolidated basis, margins decline by 1.2% YoY during the fiscal.
  • Standalone bottomline declines by 0.5% YoY during Fy08 mainly due to a contraction in operating margins and increase in depreciation costs. Consolidated bottomline dips by 14% YoY.
  • The Board recommends a final dividend of Rs 3 per share (dividend yield of 1.4%).


Financial performance snapshot
Standalone Consolidated
(Rs m) 4QFY07 4QFY08 Change FY07 FY08 Change FY07 FY08 Change
Sales 21,885 24,216 10.7% 77,268 82,955 7.4% 93,786 96,798 3.2%
Expenditure 18,479 21,199 14.7% 70,245 75,787 7.9% 84,338 88,193 4.6%
Operating profit (EBDITA) 3,405 3,017 -11.4% 7,023 7,169 2.1% 9,448 8,605 -8.9%
Operating profit margin (%) 15.6% 12.5% 9.1% 8.6% 10.1% 8.9%
Other income 540 441 -18.4% 985 689 -30.1% 484 597 23.2%
Interest expense/(income) (90) (157) 74.4% (443) (451) 1.9% (542) (602) 11.1%
Depreciation 160 176 10.2% 492 637 29.5% 1,403 1,617 15.2%
Profit before tax 3,875 3,438 -11.3% 7,959 7,672 -3.6% 9,071 8,187 -9.7%
Extraordinary income/(expense) 524 - 783 1,246 59.0% 798 1,235 54.7%
Tax 1,313 1,186 -9.7% 2,777 2,984 7.5% 3,007 3,483 15.8%
Share of profit in associates NA NA NA NA 78 75 -4.4%
Minority interest NA NA NA NA 11 19 63.9%
Profit after tax/(loss) 3,086 2,252 -27.0% 5,965 5,933 -0.5% 6,929 5,995 -13.5%
Net profit margin (%) 14.1% 9.3% 7.7% 7.2% 7.4% 6.2%
No. of shares 337.2
Diluted earnings per share (Rs) 17.8
P/E ratio (x) 12.3
NA-Not applicable

What has driven performance in FY08?
  • For the full year, Siemens’ power segment saw a dip in sales of 1.5% YoY was to that extent responsible for a dull sales performance for the company (given that it makes up almost half the company’s standalone sales). Siemens’ other two large divisions - Automation & Drives and Industrial Solutions & Services – were comparatively better performers as sales in these grew by 27% YoY and 26% YoY respectively during the fiscal. Around 32% of the company’s standalone sales for the fiscal came from exports.

    Segment-wise performance (Standalone)
    FY07 FY08
    (Rs m) Sales % of total PBIT margins Sales % of total PBIT margins Sales growth Margin change
    Power 43,008 54.9% 9.0% 42,378 47.7% 7.2% -1.5% -1.8%
    Industrial Solutions & Services 9,529 12.2% 10.0% 12,029 13.5% 12.8% 26.2% 2.8%
    Automation & Drives 16,555 21.1% 6.9% 21,048 23.7% 8.5% 27.1% 1.6%
    Transport 3,467 4.4% 6.5% 6,709 7.5% -3.0% 93.5% -9.6%
    Healthcare & Other Services 5,247 6.7% 2.2% 6,053 6.8% 5.5% 15.4% 3.3%
    Real Estate 496 0.6% 65.6% 645 0.7% 95.3% 30.1% 29.6%
    Total* 78,303 100.0% 8.5% 88,863 100.0% 8.0% 13.5% -0.5%
    * Excluding inter-segment adjustments

    The Automotive, Information & Communication and Building Technologies business segments of the company have been sold off. Out of that the Building Technologies and Automotive segments have been sold during FY08, and thus the figures for FY08 are not strictly comparable with the figures of FY07.

    Net Sales for FY08 consists of Rs 232 m from the discontinued operations, while the profit after tax for the year consists of: Rs 5.4 m from discontinued operations. Also the exceptional income for FY08 consists of profit on sale of Automotive Building Technologies segment.

  • Lower staff and lower raw material costs were beneficial to the operating margins but their effect was negated due to higher costs of traded goods as also higher costs of work in progress of projects. This led to a 0.5% contraction in operating margins, from 9.1% in FY07 to 8.6% in FY08 (for the standalone entity). That, along with higher depreciation costs, was responsible for a 0.5% YoY and 13.5% YoY fall in the company’s standalone and consolidated profits respectively during the fiscal.

What to expect?
At the current price of Rs 218 the stock is trading at a multiple of 12.3 times its FY08 consolidated earnings. Given that the company has underperformed our full year estimates, we shall have to revise the same downwards. The company’s standalone order inflows during the year stood at Rs 87 bn, down 14% compared to last fiscal’s inflows. The order backlog stood at Rs 98 bn as at 30th September 2008, an increase of 5% over that of last year’s backlog. The management expects demand for infrastructure development to continue and sees the current scenario as the Indian economy going through a correction phase.

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