Delays on the part of customers are slowing down the firm's top line and hurting profits too.
But even revenues grew at their slowest pace in the last four years revenues were up just 12 per cent, at Rs 9,657 crore. Given that the management is already seeing delays in both orders and execution, it would be surprising if the top line for the year to September 2009 grows at a quicker pace.
It’s the tight credit conditions that are partly to blame; customers have been compelled to delay their expansion plans though they haven’t cancelled any orders yet. The picture is pretty much the same across the engineering divisions, both products and services.
The management is also a tad anxious about the power segment, which brings in a good 40 per cent of revenues — sales actually dropped by 1 per cent to Rs 4,237 crore this year. Besides, profitability suffered partly due to a sale reversal of Rs 100 crore during the year.
Siemens’ order book was lower by 14 per cent at the end of September 2008, partly because of a high base due to a Qatar order. The order book at Rs 9,834 crore, isn’t really encouraging because it amounts to just about a year’s revenues.
What’s more, some of this is from Indian Railways and may remain unexecuted for a while given that general elections will be held early next year. What’s also hurting are high input costs which are denting operating margins — margins for the year fell 120 basis points to 9 per cent.
However, with prices of inputs coming off, and the company also looking to control administrative costs, margins could improve in 2008-09. The good news is that the company has cash reserves of around Rs 980 crore and plans to keep its capital expenditure at about Rs 220 crore — the same amount that it spent in 2007-08. That means it doesn’t need to borrow any funds.