Siemens Q4 earnings damp squib, but strong revenue expected

Rising commodity and logistics costs impacted margins in Sept qtr and remain an overhang

Siemens’ shares declined 5.5 per cent to Rs 2,152 apiece on the BSE on Thursday as the company's earnings missed Street estimates amidst pressure on margins.

Yet, most brokerages have a neutral, buy or outperform recommendation even as cost pressures may continue in the near-term. They believe that Siemens is poised to benefit in the long term as private capital expenditure improves, thanks to diverse end-market exposure and product portfolio. 

“The company’s addressable market opportunity has been expanding, led by improving private capex spending and larger manufacturing footprint. Unlike peers, Siemens is a play on both public infrastructure, private capex revival with additional upside from new segments,” Edelweiss report said.

The company reported a consolidated top line of Rs 4,233 crore in the September quarter, up 23 per cent year-on-year (YoY) and 47 per cent sequentially. Revenues from smart infrastructure and digital industries rose considerably year-on-year, while mobility and energy segment revenues saw significant sequential increase. Its consolidated net profit in the quarter stood at Rs 321 crore, up from Rs 138 crore in the previous quarter, but a decline from Rs 330 crore last year.

The September quarter is the final quarter of financial year 2020-21 (FY21) for Siemens as it follows an October-September financial year.

Despite a strong product portfolio, brokerages feel the company needs to surprise on order intake to meet revenue growth expectations.

“Order inflow grew 5 per cent YoY in September quarter to Rs 3,380 crore, but moderated sequentially. Strong order inflows are imperative for its future outlook, given the rich valuations,” Motilal Oswal Securities (MOSL) said in a report.

The company’s order book reached an all-time high of Rs 13,500 crore as of September. “We expect the overall pace of new orders and revenues to stay healthy going ahead with better Ebitda (earnings before interest, taxes, depreciation and amortisation) growth,” Edelweiss said in its report.

Though the top line of the company is expected to grow in the coming months, brokerages feel rising commodity prices and high logistics costs could impact margins in coming quarters as well.

In the September quarter, the company reported a consolidated margin of 10.4 per cent, a decrease of 280 basis points (bps) YoY.

“Siemens has the most diversified portfolio, with offerings across various end-markets, which enables it to capture wider growth opportunities. Underlying margin has weakened across various key segments,” said MOSL.

EBITDA margin missed Nomura’s estimate of 12 per cent and consensus estimate of 12.6 per cent. Management has highlighted elevated commodity and logistics cost pressures as key reasons for the miss on margins, said analysts at Nomura.