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Siemens Ltd
FY10 Annual Report takeaways
Key takeaways from Siemens (SIEM) FY10 annual report are as follows:
Signs of improvement in working capital management: During the year, working
capital requirements for SIEM fell on account of improvement in both, its debtor
and creditor positions, even as (a) inventories (69 days) were at their highest
levels in the last five years, (b) advances from customers declined, despite an
increase in order inflows in FY10.
Margins not impacted by provision write-back: Provisions for the year expanded
by more than Rs 2bn to Rs 15.6bn, allaying concerns that profit margins were
benefitting from write-backs on provisions.
Strong growth in power transmission, industry automation segments: Power
transmission segment (~31% of standalone FY10 sales) witnessed a strong sales
growth of 18% YoY. Growth in industry automation (7% of standalone FY10
sales) sales stood at 25% YoY during the year, while sales for drive/building
technologies were up 18%/15% YoY. Margin improvement in FY10 was driven
by the power transmission and mobility verticals with these segments
contributing 42.4% and 6.7% to the EBITDA respectively.
Impressive sales growth in industrial turbines, switchgear items: Sales of
industrial turbines (7% of total sales) almost doubled in FY10 to Rs 6.7bn
(from Rs 3.6bn in F09) and that of switchgear items (11% of total sales) increased
by 15% YoY. However, revenues from the railway equipment and maintenance
services verticals contracted by 3% and 16% respectively.
Capacity utilisation picks up: Capacity utilisation for power transformers
increased to 33% (from 14% last year). Despite an increase in installed capacity
for instrument transformers, capacity utilisation was at 61%, significantly up from
previous year’s 37%. Capacity utilisation for switchgears items and electric
motors and generators also increased remarkably to 98% (vs. 75% for FY09) and
102% (vs. 80% for FY09) respectively.
Management commentary across segments: a) For the industrial segment, SIEM
plans to set up new facilities and introduce products with local value-addition. b)
For the energy segment, SIEM is hopeful that its supercritical capacity addition
and high-voltage transmission plans will pick up. c) For the healthcare segment,
the company is expecting the market to grow at 12% CAGR in the next five years
Valuation: We believe order inflows growth and earnings upgrades are likely to
drive valuations upside for the stock. At our current estimates, SIEM is trading at
PE of 30.5x/25.0x for FY11E/FY12E. We reiterate our BUY rating on the stock.
Key takeaways
Signs of improvement in working capital management
During FY10, working capital requirements for SIEM fell on account of improvement in
both, its debtor and creditor positions, even as (a) inventories (69 days) were at their
highest levels in the last five years, (b) advances from customers declined. In terms of
cashflow from working capital, for FY10 it was cash inflow of Rs 239 mn buoyed by
debtors, loans & advances and current liabilities.
Margins not impacted by provision write-backs
Provisions for the year expanded by more than Rs 2bn to Rs 15.6bn, allaying concerns
that profit margins were benefitting from write-backs on provisions. Provisions for
warranty costs increased by Rs 441mn and that for liquidated damages (related to delay
in delivery/commissioning of projects) by Rs 1bn in FY10. Provisions related to
contingencies (related to contractual risks, litigation cases pending assessment of taxes,
duties) also went up by Rs 657mn during the year. However, during FY10, utilisation
rates of provisions were only at 10%/3.8%/0.3% for warranty costs/liquidated
damages/contingencies.
Strong growth in power transmission, industry automation segments
Power transmission segment (~31% of standalone FY10 sales) witnessed a strong sales
growth of 18% YoY. Growth in industry automation (7% of standalone FY10 sales) sales
stood at 25% YoY during the year, while sales for drive/building technologies were up
18%/15% YoY. Margin improvement in FY10 was driven by the power transmission and
mobility verticals with these segments contributing 42.4% and 6.7% to the EBITDA
respectively. Industrial turbines/switchgear items sales picked by 87%/15% during the
year.
Capacity utilisation for transformers pick up: Capacity utilisation for power transformers
increased to 33% (from 14% last year). However, installed capacity was constant at
15,000MVA. Despite an increase in installed capacity for instrument transformers,
capacity utilisation was at 61%, significantly up from previous year’s 37%. Capacity
utilisation for switchgears items and electric motors and generators also increased
remarkably to 98% (vs. 75% for FY09) and 102% (vs. 80% for FY09) respectively.
Performance of subsidiaries: Siemens Rolling Stock increased its total asset base to
Rs 1.4bn at FY10-end from Rs. 0.8bn at FY09-end. Sales for FY10 also increased to
Rs 108mn (from Rs 29mn in FY09). However, PAT remained in negative territory as the
subsidiary is still in a ramping-up phase. Also, Siemens Building Technologies reported a
40% YoY increase in sales to Rs 2.5bn. At the PBT and PAT level, margins were 10.4%
and 3.2% respectively.
Outlook: As per the management discussion and analysis, the following key points
emerged for various sectors: (a) For the industrial segment, SIEM plans to set up new
facilities and introduce products with local value-addition. b) For the energy segment,
SIEM is hopeful that supercritical capacity addition and high-voltage transmission plans
will pick up. c) For the healthcare segment, the company is expecting the market to
grow at 12% CAGR in the next five years.
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