BackPoor sales growth and high costs drags down Siemens’ profit in Q1
Poor sales growth and high costs drags down Siemens’ profit in Q1
PremiumFile photo of Siemens plant in Kamp-Lintfort, Germany . Bloomberg
A year ago, investors who cashed in on the open offer to buy back shares of Siemens Ltd at ₹ 930 apiece would have had the last laugh.
Not only did they walk away with a 30% premium to the then-prevailing market price of ₹ 727, but also they have nothing to regret as the stock is at about the same level ( ₹ 731) even now.
The company’s profit has been squeezed with sluggish revenue growth and rising costs. In fact, revenue for the quarter contracted 7% when compared with a year before, which the management explained was on account of delays in financial closure of some projects.
A jump in raw material costs as a percentage of sales from about 72% a year ago to 78% was a negative surprise, which, along with an increase in employee costs, dragged profitability.
Operating margin was a huge 920 basis points (bps) lower from the year before and about 180 bps down from the September quarter. That is unexpected, given that the firm’s restructuring exercise should have helped buoy margins. A basis point is one-hundredth of a percentage point.
One might have got a cue from parent Siemens AG’s first quarter results announced a week ago. Peter Loscher, president and chief executive, had stated, “Our revenue increased again (2% year-on-year), while certain project delays burdened profits."
The biggest fall was its 70% drop in reported net profit at ₹ 70.6 crore. It was way below Bloomberg’s consensus estimates of about ₹ 200 crore.
Also See| Graphics (PDF)
Further, the 29% drop in order inflows only echoed the performance of sector behemoth Bharat Heavy Electricals Ltd, which also reported a contraction in order intake. For now, even the parent company’s performance, portraying a more challenging environment for fiscal 2012 and tighter cash flows because of stretched working capital needs, is not comforting.
Although Siemens shares have outperformed the capital goods index of BSE in the past few months, the upside seems to be capped, given its lacklustre performance.
Graphic by Ahmed Raza Khan/Mint
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