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Siemens benefits from restructuring

Siemens benefits from restructuring
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First Published: Thu, Nov 25 2010. 12 14 AM IST

Graphics by Yogesh Kumar/Mint
Graphics by Yogesh Kumar/Mint
Updated: Thu, Nov 25 2010. 12 14 AM IST
After about two years of lacklustre performance, Siemens Ltd closed the year ended September with strong orders and earnings growth.
Order backlog, which is a pointer to revenue growth in the ensuing quarters, rose by 32% over the previous year to Rs13,583 crore. New order inflows for the year were encouraging as they grew by 41%, compared with a flat trend in orders during fiscal year ended September 2009.
Graphics by Yogesh Kumar/Mint
Besides, the fourth quarter performance was encouraging as its revenue grew by 21.6% year-on-year (y-o-y) to Rs3,061 crore. This also reflected a 36.3% quarter-on-quarter (q-o-q) growth rate, significantly higher than analysts’ consensus estimates.
Analysts at Motilal Oswal Securities Ltd, for instance, had estimated revenue at Rs2,681 crore, representing a sequential growth of 19.4%. The firm’s overall restructuring exercise, both on business and cost fronts, led to a jump in operating profit margin to 13% last quarter, compared with 9.8% a year ago and about 10.7% in the June quarter.
The improvement in margins, however, is short of the over 400 basis points rise Motilal Oswal had estimated. One basis point is one-hundredth of a percentage point.
Cost rationalization is evident in employee costs—although it rose 13.5% y-o-y in absolute terms. Higher revenue and operating leverage brought down staff costs as a percentage of sales to 5.8% from 6.3% a year ago and 7.6% in the June quarter.
Siemens also registered a significant y-o-y drop of 43% in other expenses at Rs73.7 crore during the quarter. Strong operational performance during the quarter resulted in a strong 67% y-o-y growth in net profit to Rs253 crore.
What augurs well for the firm is the steady quarterly improvement in performance, which culminated in an 11.1% growth in annual revenue to Rs9,400 crore. The management stated that this came from growth across business segments—industry, energy, healthcare and real estate.
The industry segment, which has a larger element of short-cycle products, registered a 10.5% y-o-y growth, accounting for about 54% of the stand-alone revenue. The energy segment, which is the other major contributor to revenue, grew by 8.4% during the year and it accounts for nearly two-thirds of the firm’s earnings before interest and tax. Analysts anticipate this segment to do well in fiscal 2011 too, as more orders from the sector could come its way.
Growth across segments translated into a 26.4% growth in stand-alone operating profit to Rs1,293 crore for the full year. It came at an operating profit margin of 13.8%, about 170 basis points higher than the previous year.
The adjusted net profit at Rs253 crore was about 40% higher than the previous year, which included a one-time dividend and profit on sale of investment in two of its subsidiaries amounting to Rs398 crore. The company should benefit from the parent firm’s commitment to expanding Indian operations over the next three years, which it stated about a year ago.
A report from Religare Capital Markets Ltd says, “Apart from the leadership in certain high-technology product lines, Siemens is also focusing on developing the Indian operations as a global sourcing hub for value products.”
Thanks to the improvement in growth rates and the benefits of the firm’s restructuring, Siemens shares have returned around 40% in the last 12 months, outperforming both the Sensex and the capital goods index of the Bombay Stock Exchange. Valuations are rich at around 30 times estimated earnings for the year ended September 2011.
But with the company’s order book at an all-time high, Siemens’ shares may continue to be in demand.
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First Published: Thu, Nov 25 2010. 12 14 AM IST