Stock review: Siemens

Siemens sprung back to robust growth in financial year ended September 2010, after distressing for two financial years, thanks to better-than expected performance by all three business segments —industry, energy and healthcare.

Standalone revenues rose 11 per cent to `9,400 crore largely helped by short-cycle orders-led industry business, which saw the revenues grow 10.3 per cent to `4,844 crore (47 per cent of total revenues), while healthcare revenues recorded an impressive growth of 39 per cent to 754 crore. Energy business' sales at `4,707 crore rose at a lower rate of 8.4 per cent as orders are of high gestation period and competition is stronger compared to other businesses.

Operating profit margin (OPM) improved 166 basis points (bps) to 13.8 per cent due to better operating efficiencies and sharp improvement in industry business' margins. Net profit margin (NPM) adjusted for dividend income and profit sale of subsidiaries last year also surged 107 bps to 8.8 per cent.

In the September quarter, the company reported highest growth of 22 per cent y-o-y in sales at `3,061 crore, while OPM and NPM jumped 334 bps and 226 bps to 13.1 per cent and 8.3 per cent, respectively.

Order book (OB) growth of 32 per cent at `13,584 crore has largely come from long cycle-led energy sector (70 per cent share in total OB), which means stable growth in the top line. However, the management has expressed caution about competition in all its businesses. Analysts expect downside risk to margin and suggest investors keep a tab on them despite the company remaining focused on its goal of profitable growth.

Siemens announced 250 per cent dividend ( `5on `2 face value) for second consecutive year. Most analysts are optimistic about the prospects of the company and recommend buying the stock, which trades at 26 times and 21 times FY11 and FY12 estimated earnings, respectively.

High-gestation energy projects will support revenue growth but competition remains a downside risk to margins