Active Stocks
Mon Dec 04 2023 11:12:42
  1. Reliance Industries share price
  2. 2,409.75 0.68%
  1. State Bank Of India share price
  2. 589.8 3.14%
  1. Tata Steel share price
  2. 131 0.81%
  1. HDFC Bank share price
  2. 1,585 1.9%
  1. ITC share price
  2. 454.5 1.02%
Business News/ Markets / Mark To Market/  Siemens takes a tumble with pvt sector capex at a virtual standstill
Back Back

Siemens takes a tumble with pvt sector capex at a virtual standstill

Business  operations were hit as its facilities are in containment zones; revenues fell across all segments
  • Much of the private sector, which had planned capex prior to covid, is cutting back such outlays
  • Lower revenues meant costs were under-absorbedPremium
    Lower revenues meant costs were under-absorbed

    Siemens Ltd’s April-June figures were severely disrupted by covid-19, while hope now rests on government orders to boost revenue. The firm, which follows an October to September financial year, saw its revenue plunge 59% in Q3, with private sector capital expenditure virtually at a standstill. The stock is about 28% lower than pre-covid highs. In comparison, the Nifty is now only 7% lower than its February highs.

    The revenue drop reflects the tough market situation in the capital goods sector. Siemens’ operations were hit as its facilities are in containment zones. Besides, the exodus of migrant labour and weakness in end-consumer markets added to its woes. Revenues fell across all segments.

    Lower revenue meant costs were under-absorbed. It suffered an operating loss of 9.6 crore, against a 353.7 crore profit in the year-ago period. The operating profit impact was cushioned to some extent by a settlement in a large mobility project.

    Lower gear
    View Full Image
    Lower gear

    Nevertheless, the coming quarter will test investors. Much of the private sector that had planned capital expenditure prior to the pandemic is now cutting back such outlays significantly.

    While there are some segments such as pharma and chemicals that are investing in expansions, this is not significant just yet.

    “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.

    For now, investors will have to contend with the steady trickle of government orders. While Siemens does have an advantage in digitization and automation, the current orders are mostly of a shorter duration, which can be executed in a year or so. Even so, order inflows slid 40% this quarter, and the overall order backlog is significantly below the peak of a few years ago.

    Still, for now, Siemens is comfortable on the execution front with 60-70% of labour and capacity utilization back. But even at a greater revenue, operating costs may be under-absorbed.

    Momentum in its urban market business, railway propulsion and signalling systems is expected to pick up in the coming quarters. The company is focusing on orders where cash flows are quicker, which would improve operating efficiency.

    Even so, the stock’s recent fall has not brought down valuations to comfortable levels. It trades at about 35 times FY21 earnings.

    Siemens will need a faster pick-up to absorb some of its high costs, and exhibit sufficient profitability to justify such valuations. But given the pandemic and its impact on private sector capex, this may turn out to be a long wait for investors.

    Milestone Alert!
    Livemint tops charts as the fastest growing news website in the world 🌏 Click here to know more.

    Catch all the Elections News, Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
    More Less
    Updated: 12 Aug 2020, 10:20 PM IST
    Next Story footLogo
    Recommended For You

    Get the best recommendations on Stocks, Mutual Funds and more based on your Risk profile!

    Let’s get started
    Switch to the Mint app for fast and personalized news - Get App