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Siemens: Consolidated view - Views on News from Equitymaster
 
 
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  • Dec 4, 2003

    Siemens: Consolidated view

    Siemens India has witnessed a substantial increase in its stock price in recent times. The company's stock has run up by almost 50% in last one month, especially after the declaration of FY04 results (September ending). Let's have a look at the FY04 results on consolidated basis and analyse the reasons for the run up and see whether it is justified.

    Siemens Consolidated
    (Rs m) FY03 FY04 Change
    Net Sales 15,278 17,191 12.5%
    Other Income 306.84 818 166.4%
    Operating Profit (EBDIT) 1,398 1,629 16.5%
    Operating Profit Margin (%) 9.2% 9.5%
    Profit before Tax 1,505 2,237 48.6%
    Tax 486.94 456.08 -6.3%
    Profit after Tax/(Loss) 1,018 1,781 74.9%
    Net profit margin (%) 6.7% 10.4%  
    Diluted Earnings per share (Rs)* 30.7 53.7  
    Current P/E ratio (x) 27.7 15.8  
    *(annualised)      

    Siemens increased its holding in one of its subsidiaries, Siemens Information System Ltd. (SISL) from 74.8% to 100% in FY04. So, on a consolidated basis, the picture looks stronger. The topline growth stands at around 13% where as the bottomline grew by around 75% YoY. Operating margins improved marginally by 30 basis points, where as the net profit margins improved significantly (370 basis points).

    The main reason for only a marginal improvement in operating margins is the losses from health care business. The company was not able to perform well in health care segment because of one time charging of losses, which is nonrecurring in nature. However, the management is confident that health care division will be a key growth driver in next 5 years, and is also confident of achieving around 5% margins at PBIT level going forward.

    Siemens's IT arm, SISL also performed well in the FY04, as it managed to grow by 19% as compared to IT industry growth of 18%. Domestic business contributes around 15% of SISL's revenues, where as remaining 85% comes from exports. The order intake for SISL increased by around 16% in FY04. The management seems to be confident of achieving a YoY growth of around 18% for next 2-3 years. Infact, yesterday some media reports mentioned news about SISL in final talks for bagging a contract of Rs 2.5 bn from European markets.

    Let's have a look at the comparative valuations.

    (Rs m) ABB BHEL Siemens
    Net Sales 13,750 84,870 17,191
    PAT 1,089 6,454 1,781
    Operating Profit margins (%) 10.3% 14.0% 9.5%
    Net Profit margins (%) 7.9 7.6% 10.4%
    Market Cap/Sales (x) 1.9 1.3 1.7
    P/E ratio (x) 24.5 17.5 15.8

    FY04 projected figures for BHEL and ABB

    At the current price level of Rs 850, the stock trades at P/E multiple of 15.8x FY04 earnings. Looking at the business of the company, it seems that the growth prospects for Siemens are bright. Though stock may look cheaper on the relative valuation basis, but one needs to be cautious, as it seems too much growth has already been factored in the price. One can look at the company from a longer-term perspective of 3 to 4 years.

     

     

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