Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2018 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Siemens: Impairment losses hurt - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Siemens: Impairment losses hurt
Dec 4, 2012

Siemens has announced the fourth quarter and full year results of financial year 2012. The company has reported 5.9% YoY decline in sales and a net loss of Rs 558 m during the quarter. Here is our analysis of the results.

Performance summary
  • Sales decline by 5.9% YoY in 4QFY12 (September ending fiscal).
  • Operating margins decline to 2.9% in 4QFY12 from 8.1% in 4QFY11 on account of rise in employee expenses and raw materials as a percentage of sales.
  • The company reported a loss of Rs 558 m during the quarter. This was predominantly due to an impairment loss and provisioning arising from the wind energy business.
  • It may be noted that during the quarter, due to significant cost variations in certain projects the company took a provisioning hit of Rs 7.6 m which impacted the profitability adversely. For the full year, the figure stood at Rs 799 m.
  • The board of directors recommended a dividend of Rs 6 per share for the fiscal under consideration.

Standalone financial performance
(Rs m) 4QFY11 4QFY12 Change FY11 FY12 Change
Sales 34,726 32,694 -5.9% 118,183 127,081 7.5%
Other operating income 671 1,058 57.7% 2,106 2,118 0.5%
Expenditure 32,532 32,757 0.7% 106,938 120,286 12.5%
Operating profit (EBDITA) 2,865 995 -65.3% 13,352 8,913 -33.2%
Operating profit margin (%) 8.1% 2.9%   11.1% 6.9%  
Finance costs 45 66 45.5% 127 270 111.8%
Other income 298 126 -57.6% 1,047 575 -45.1%
Depreciation 410 559 36.6% 1,522 2,010 32.1%
Profit before tax 2,708 496 -81.7% 12,750 7,208 -43.5%
Exceptional items - 1,200     1,200  
Prior period items - 7.6     799  
Tax 927 (154)   4,295 1,777 -58.6%
Profit after tax/(loss) 1,781 (558)   8,454 3,432 -59.4%
Net profit margin (%) 5.0% -1.7%   7.0% 2.7%  
No. of shares         340.3  
Basic & Diluted earnings per share (Rs)         10.1  
P/E ratio (x)*         67.2  
*On trailing 12 months earnings

What has driven performance in 4QFY12?
  • Siemens reported a 5.9% YoY decline in sales during 4QFY12. Sales from the infrastructure and cities segment increased 1% YoY while that from the industry segment increased 21% YoY. However, revenues from the energy and healthcare segment declined 22% YoY and 13% YoY respectively. It may be noted that in the current quarter, two subsidiary companies VAI Metals Technologies Pvt Ltd and Morgan Construction Company Pvt Ltd were amalgamated with the company. As a result, the figures are not strictly comparable. However, despite amalgamation overall revenues de-grew by 5.9% YoY.

    Segment-wise performance (Standalone)
      4QFY11 4QFY12    
    (Rs m) Sales % of total PBIT margins Sales % of total PBIT margins Sales growth Margin change
    Continuing operations
    Infrastructure & Cities 8,818 24% 5.6% 8,892 25% 6.2% 1% 0.6%
    Energy 15,416 41% 8.8% 12,082 34% -16.2% -22% -25.0%
    Industry 9,714 26% 3.4% 11,794 33% 4.2% 21% 0.8%
    Healthcare 3,556 9% 5.5% 3,108 9% 4.9% -13% -0.7%
    Total* 37,504.0 100.0% 6.3% 35,877.3 100.0% -2.1% -4.3% -8.4%
    * Excluding inter-segment adjustments & unallocable operating revenue

  • Siemens' operating margins declined to 2.9% in 4QFY12 from 8.1% in 4QFY11. This was mainly due to increase in all expenditure heads (except other costs) as a percentage of sales. The raw material expenses (including stock adjustments) increased from 77.4% in 4QFY11 to 81.5% in 4QFY12 (as a percentage of sales). The employee expenses, too, increased from 7.2% in 4QFY11 to 10.5% in 4QFY12. The primary reason for increased costs is overruns in certain projects. Also, lower execution which led to fall in topline made absorption of fixed cost difficult and thus impacted margins.

  • Siemens reported a net loss of Rs 558 m during the quarter. Muted performance at the operating level, fall in other income and exceptional losses pertaining to wind energy business led to losses in the quarter. It may be noted that the company had recently acquired land for setting up wind energy business. But considering the current market conditions it has decided to use the assets acquired for wind energy for alternative purpose. Pursuant to that, the company recognized an impairment loss of Rs 1.2 bn during the quarter. Also, due to significant cost variations in certain projects the company took a provisioning hit of Rs 7.6 m during the quarter which impacted the profitability adversely.

What to expect?
At the current price of Rs 678, the stock is trading at a multiple of 67.2 times its trailing twelve month earnings. However, the high multiple should be seen in the context of impairment and provisioning losses incurred during the year which impacted earnings adversely. It may be noted that amidst significant development/changes in certain projects the company had to create contingences during the quarter. Further, exit from the wind energy business led to impairment losses.

Going forward, we believe that the recovery in industrial capex will take some time to emerge as interest rates are not expected to fall drastically. In such an environment, focus on controlling capital employed and cash flows gains prominence. It would be interesting to see if Siemens is able to do that. Considering the expensive valuations and pressure on profitability we maintain our SELL view on the stock.

To Read the Full Story, Subscribe or Sign In

Small Investments
BIG Returns

Zero To Millions Guide 2018
Get our special report, Zero To Millions
(2018 Edition) Now!
We will never sell or rent your email id.
Please read our Terms


Sep 24, 2018 (Close)


  • Track your investment in SIEMENS with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
  • Add To MyStocks