Siemens is cutting down its capital expenditure as subdued business environment reduced order inflows and impacted profits. Siemens reported Rs 55 crore loss in September end quarter as compared to Rs 178 crore profit same period last year. Siemens annual profit was down over 50% and now broking firms have cut the company's earning estimate by 10-20% for next fiscal anticipating weak results.
"We have started our own cost-reduction programme aimed at improving profitability. The reason is uncertain business environment," Siemens India's Managing Director Armin Bruck said in an email response.
The company will be taking series of measures to trim costs, strengthen core business activities, improve sales and optimise the use of its facilities in line with its parent company's strategy. It will also focus on its low cost high technology "SMART'' products which contributed 15% of the order intake.
"SMART products today contributes 15% to the order intake compared to 10% in 2010-11 and 5% in 2009-10," Bruck said.
Order inflow declined 17% in last fiscal and revenue and margins were impacted due to project delays and cost over runs. The company announced the closure of its wind turbine manufacturing plant at Vadodara booking a loss of Rs 120 crore. The energy and industrial division segment saw fewer orders and a dip in profits.
In its interaction with analysts last week Siemens management maintained that weak outlook to continue for near to medium term on the back of slow traction in large value business. It said that liquidity at the client's end was impacting project execution.
In its note to investors HDFC Securities said it expects Siemens to report muted revenue growth for the next two years. It said margins will improve as a result of company's aggressive policy of recognising costs but double digit margins are still are some time away.
"The company's order book too is declining and I do not expect 10-15% revenue growth," said an equity analyst who tracks the company. "Exceptional items like impairment loss due to closure of wind energy plant, an adjustment of Rs 79 crore against previous year's expense impacted the result. Excluding that the adjusted profit for the September end quarter works to about Rs 65 crore," he added.
Broking houses Edelweiss and Antique have cut Siemens's profit estimate for next fiscal by 9.6% and 20% respectively anticipating lower revenue and margin pressure.
Bruck did not specifically comment on broking house estimates. "We do not make forward-looking statements. New investment announcements have been continuously declining for the past six quarters due to issues such as slowdown in the economy, project delays faced by the customer and high interest rates. However, we are confident that the positive steps by the government in implementation of the various reforms and other measures expected in infrastructure and power sectors [such as debt restructuring] would open up the economy," Bruck said.
