Siemens: Charged up

Siemens has posted impressive numbers for 2005-06

Siemens has turned in a splendid performance for the year ended September 2005. Consolidated net sales has jumped 61 per cent to Rs 3677.9 crore, while earnings before interest tax and depreciation (EBITDA) has grown 63 per cent to Rs 471.7 crore.

It's no surprise that the stock hit its all-time high of Rs 2,682 on Thursday, though it closed flat at Rs 2,637. With a consolidated order book of Rs 5,104 crore, the company is capitalising on the growth in the power sector and also on the capacity expansion taking place in other segments.

The market had probably been anticipating good numbers because the stock has outperformed the Sensex in the last three months.

Standalone numbers for the fourth quarter too were good with sales showing a 64 per cent growth, while EBITDA grew 46.6 per cent to Rs 92.7 crore.

The company faced some cost pressures with raw materials to sales seeing an increase of around 450 basis points to 71 per cent in the September 2005 quarter. Apart from higher steel prices, this was also owing to a change in the product mix.

As a result, EBITDA margins were lower at 9.8 per cent in the September quarter compared with 11 per cent in September 2004 quarter. However, net profit growth was strong at 82.5 per cent with the company not incurring any interest charges thanks to its strong cash flows.

The power segment has been the main growth driver. In the September quarter, revenues from this division grew over 100 per cent, while the growth in automation and drives segment was also good at 47 per cent.

The latter, however was more profitable in the fourth quarter with a PBIT margin of 8.7 per cent compared with 5.4 per cent for the power segment.

At the current price of Rs 2,637, the stock trades at a multiple of 18 times estimated 2005-06 (September year end) earnings and appears attractively valued given the exceptionally strong order book position and also the strong capex cycle that the economy is currently seeing.

With steel prices easing somewhat and the company's cash from operations strong at Rs 353 crore, the company's margins could also improve going forward.

Nicholas Piramal

Nicholas Piramal India (NPIL) has announced its second contract manufacturing deal within less than a month, when it signed a long-term manufacturing and supply agreement with a global hospital products company. Investors have liked the move as the stock rose 5.5 per cent to Rs 286.60 on the BSE.

Under the agreement, NPIL will supply a range of pharmaceuticals to the hospital products company in certain global markets. Though the company has not revealed the name of the customer, it expects to earn revenues of $12-15 million (Rs 55-68 crore) per year initially. The company will start exporting once it gets the necessary regulatory approval for the drugs.

Analysts expect the entire revenues to start accruing after 18 months, and almost double over the years as the company adds more products. These products will be manufactured at its USFDA-approved facilities in Andhra Pradesh and the company will incur a capex of about Rs 20 crore.

Last month, NPIL signed a long-term deal with AstraZeneca to develop processes for the manufacture of intermediates and bulk drugs, which could result in supplying drugs to the latter. It also acquired Avecia Pharmaceuticals, UK for £9.5 million.

Avecia, a custom manufacturing player, which provides custom chemical synthesis and manufacturing services. It had consolidated sales of £36.1 million and a loss at the EBITDA level of £4.6 million in 2004. This acquisition will provide NPIL a pipeline of products, customers and technology, but it will have to work on turning the company around.

NPIL is pursuing the contract manufacturing business, which is expected to account for half its sales by 2010. Besides having continuity, this business earns higher margins than the generics business. For the first half of 2005-06, NPIL's consolidated revenues grew 3.2 per cent to Rs 757.85 crore.

Its EBITDA margin also fell to 18.3 per cent in September 2005 from 21 per cent in previous corresponding half year, and the EBITDA fell 9.1 per cent to Rs 159.1 crore.

This was due to lost sales of Rs 24 crore in the September quarter of Phensedyl, the withdrawal of Valdecoxib (annual sales of Rs 11.4 crore) and the divestment of Carex (annual sales of Rs 9.3 crore). At the current price, the NPIL stock is discounted about 28 times based on its trailing 12-month P/E, and is fairly valued.

With contribution from Shobhana Subramanian