Siemens: A flash in the pan?

The company has done well in the March quarter but it may be too soon to call a turnaround.

Compared with peer ABB, engineering firm Siemens has turned in some good numbers for the March 2009 quarter. The Street was pleasantly surprised with the revenue growth of 11 per cent—most analysts were expecting half those levels. ABB’s revenues, it may be recalled, had slipped 9 per cent during the quarter.

Siemens’ sales were driven by the strong performance of the power division — nearly 75 per cent of revenues — in which several projects were completed. The adjusted operating profit margin (opm) expanded to 14.1 per cent compared with 10.7 per cent in the previous quarter, again the impact of better profitability in the power business. The numbers are not strictly comparable because in the March 2008 quarter the company had made provisions of Rs 230 crore, a part of which has been written back in March 2009, though exactly how much is not known.

The profit before interest and tax (pbit) margins for the power division, at 18.2 per cent, analysts point out has been the highest in the last six quarters. They believe this has been possible because the share of lower-margin export orders may have fallen. The industrials business, on the other hand, saw a fairly sharp fall in margins, possibly because customers faced some financing issues. The order inflow for the quarter at Rs 1,900 crore, not surprisingly showed a 21 per cent fall year-on-year leaving the order book more or less where it was last quarter at close to Rs 10,000 crore. The company is understood not to have pursued contracts which it felt may lead to problems of payments or were simply not profitable enough.

Since revenues in the six months to March 2009 are down by about one per cent, analysts believe it’s too soon to call a turnaround. At Rs 337, the stock is trading at just over times estimated 2008-09 earnings, which is not cheap given that there’s still some uncertainty about the economic environment and also because a fairly large portion of the revenues are earned from the Middle East.