 "Siemens: Order inflow promising")
Results published by Siemens last week were disappointing, but the Street decided to reward the stock, which is up four per cent after results, on strong order inflows.
Order inflows, particularly in its core sectors such as railways and power transmission and distribution, were weak until two quarters ago. But the June quarter (third quarter of FY16 as Siemens follows October-September accounting year) saw healthy order traction particularly from these sectors, helping Siemens post order inflows of Rs 3,224 crore, up 44 per cent year-on-year (y-o-y). Siemens bagged orders worth Rs 330 crore from Power Grid Company of Bangladesh Limited, Rs 83 crore of projects from Diesel Locomotive Works, Varanasi, and a part of Rs 570 crore of statcom orders awarded by Power Grid Corporation of India Limited to Siemens AG (its parent company). Statcom is an equipment used to support electricity networks that have poor power factor or voltage regulation.
Siemens' total order book, thus, stood at Rs 11,700 crore (the highest in six quarters) at the end of the June quarter, giving it revenue visibility of a little over 12 months.
With this, analysts at Kotak Institutional Equities have increased their revenue target for FY17 by 10 per cent to Rs 12,657 crore (17 per cent growth y-o-y).
However, while revenues in the June quarter were up 10 per cent y-o-y to Rs 2,563 crore, net profit fell 13 per cent to Rs 130 crore. The quarter saw operating profit margins once again coming under pressure and falling to 8.8 per cent against 10.6 per cent last year. Variations in margins were pronounced in core segments such as power and gas, energy management, and digital factory; down 300-800 basis points y-o-y. The management attributes margin decline to factors such as one-time costs and adverse exchange rates.
Rohit Natarajan of IDBI Capital says operating profit margins in the long run are improving and this does not indicate pricing pressures for Siemens.Order inflows, particularly in its core sectors such as railways and power transmission and distribution, were weak until two quarters ago. But the June quarter (third quarter of FY16 as Siemens follows October-September accounting year) saw healthy order traction particularly from these sectors, helping Siemens post order inflows of Rs 3,224 crore, up 44 per cent year-on-year (y-o-y). Siemens bagged orders worth Rs 330 crore from Power Grid Company of Bangladesh Limited, Rs 83 crore of projects from Diesel Locomotive Works, Varanasi, and a part of Rs 570 crore of statcom orders awarded by Power Grid Corporation of India Limited to Siemens AG (its parent company). Statcom is an equipment used to support electricity networks that have poor power factor or voltage regulation.
Siemens' total order book, thus, stood at Rs 11,700 crore (the highest in six quarters) at the end of the June quarter, giving it revenue visibility of a little over 12 months.
With this, analysts at Kotak Institutional Equities have increased their revenue target for FY17 by 10 per cent to Rs 12,657 crore (17 per cent growth y-o-y).
However, while revenues in the June quarter were up 10 per cent y-o-y to Rs 2,563 crore, net profit fell 13 per cent to Rs 130 crore. The quarter saw operating profit margins once again coming under pressure and falling to 8.8 per cent against 10.6 per cent last year. Variations in margins were pronounced in core segments such as power and gas, energy management, and digital factory; down 300-800 basis points y-o-y. The management attributes margin decline to factors such as one-time costs and adverse exchange rates.
But analysts at Emkay Global have downgraded their earnings estimate by three per cent, 11 per cent, and six per cent for FY16, FY17, and FY18, respectively, on assumption of lower profitability.
Against this backdrop, the next quarter will be critical to ensure Siemens closes the year with the expected 11 per cent margin.
For now, even as order flows are improving, sustainable profitability is important to revive investor interest. While peers such as ABB have seen softening in valuation, that of Siemens remains stiff at nearly 60 times FY17 price earnings.