Mumbai: Siemens Ltd shares declined 2.3% on Wednesday following a margin miss and weak order flows in the September quarter (Q4 FY19).

An intensifying slowdown in the capital expenditure (capex) cycle is hurting infrastructure and capital goods firms across markets. Siemens is no exception. Quarterly order inflows fell 14.2% year-on-year to 3,189 crore. The overall order book of 11,879 crore was about 3.8% lower year-on-year.

Besides, the company’s order book of less than a year’s revenue is worrisome as it may thwart revenue and profit traction in the coming quarters.

As such, Q4 revenue rose 5% year-on-year to 4,128 crore, in line with forecasts on the Street. Meanwhile, material cost pressures and one-time employee benefit expenses dragged operating margin down to 9.8% by 80 basis points year-on-year. This is substantially lower than Bloomberg’s average estimates of 11.1%. A basis point is one-hundredth of a percentage point.

The company like its peers is battling the challenges of a slowdown.
The company like its peers is battling the challenges of a slowdown.

A segment-wise analysis showed that the two key businesses of gas and power, and smart infrastructure reported a drop in revenue. However, Ebit (earnings before interest and tax) of these two segments increased by 15% and 21%, respectively, shoring up overall profitability.

Meanwhile, the digital industries segment, albeit smaller in revenue terms, fared well with Ebit rising 27% year-on-year in the September quarter. The mobility segment’s Ebit that fell sharply by 32% year-on-year, was a drag on performance.

To be sure, the company like its peers is battling the challenges of a slowdown. A report by Motilal Oswal Securities Ltd highlights the broader macroeconomic concerns. “Recent high-frequency data (Index of industrial production, fuel consumption, power demand, auto monthly data) clearly signal well-entrenched demand slowdown, which has already resulted in sharp downgrades to our FY20 gross domestic product," says the report.

Reiterating this sentiment, Sunil Mathur, managing director and chief executive officer of Siemens, said, “We see muted capex spending in the next couple of quarters by both public and private sectors."

That said, new order enquiries from segments such as digitalization of small and medium manufacturing industries, gas and power, and smart cities show promise in some pockets.

From an investor standpoint, the company’s order flows is a strong indicator of revenue and earnings growth in the quarters ahead. Therefore, sentiment on the Street is likely to cap valuations, which, at 45 times one-year forward earnings, are anyway quite rich.

Of course, the Siemens stock has steadily outperformed the benchmark BSE Capital Goods index. Strong parentage and a healthy balance sheet are positives during challenging times

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