Home >Companies >Company Results >Siemens’ Q3 sees covid-19 disruption; near-term outlook could be dull
While Siemens does have an advantage in digitalization and automation, order flows from the private sector are at a standstill
While Siemens does have an advantage in digitalization and automation, order flows from the private sector are at a standstill

Siemens’ Q3 sees covid-19 disruption; near-term outlook could be dull

  • The company showed an operating loss of Rs9.6 crore as against a profit of Rs353.7 crore in the year-ago period
  • Migrant labour issues and weakness in end-consumer markets added to its woes in Q3

Covid-19 has disrupted Siemens Ltd’s Q3 numbers quite severely. Revenues tumbled sharply. But the near-term pace of recovery could be hit as private capital expenditure is at a standstill. Shares of Siemens tumbled 23% in 2020 and fell marginally on Wednesday.

The sharp revenue drop of 59% year-on-year reflects the tough market conditions in the capital goods space. Migrant labour issues and weakness in end-consumer markets added to its woes in Q3. In fact, Siemens' weak results were across all its segments.

Lower revenues and higher costs hit operating profit of Siemens hard. As a result, the German multinational conglomerate showed an operating loss of Rs9.6 crore as against a profit of Rs353.7 crore in the year-ago period. Further, Siemens incurred additional costs of Rs230 crore to restart operations. It did cut corners during the quarter, which, along with a settlement from a large project in mobility, helped cushion the impact on operating profit.

Nevertheless, the coming quarters would test investors. Private sector capital expenditure has slowed, and the size of government orders is shrinking.

"The private sector, in specific, is resorting to reordering and renegotiating orders, leading to Siemens focusing on improving cost structure. Green shoots are selective for now, limited to some traction in metro jobs and select pockets of building automation," said analysts at Kotak Institutional Equities in a client note.

Siemens has many sites running with 60% labour. Logistics and supply chains are also improving. That should indeed see a pickup in revenues in the subsequent quarters. While Siemens does have an advantage in digitalization and automation, order flows from the private sector are at a standstill. Besides, orders are likely to be of short-cycle in nature as the private sector is in capital preservation mode. The company has also scaled back its execution on orders against cash.

However, order inflows fell about 40%, and the backlog of about Rs13,100 crore is well below peak levels. In the immediate future, though, much will depend on how government moves on large orders, particularly in areas such as metros and freight corridors.

Further, analysts are cutting on expectations for this year, with Siemens expected to see earnings shrink considerably. While a revival is expected in the coming year, the valuations of about 35 times FY21 earnings also weigh heavily on the stock, given the slower pace of execution.

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