Siemens’ realigned business focus is revving up order flows and margins

 (Photo: Reuters)

Siemens Ltd checked all the boxes in its March quarter results. While the economy has been sluggish in recent months, it looks like the Indian arm of the German capital goods conglomerate is on a firm recovery path.

To start with, order flows surged 24.6% from a year earlier to3,635 crore. Investors were evidently impressed with the news. The company’s shares gained about 5% since the results were announced on 14 May.

In the past six months, Siemens’ shares are up more than 20%, while the BSE Capital Goods index has declined by about 5%.

The company’s focus on short-cycle products in recent times, instead of project orders with long gestation periods, has helped. Its digitization product portfolio, along with mobility products (catering to urban mobility), have benefitted through orders from power substation upgrades, smart buildings and cities, and from industries such as renewable energy.

Only a few weeks ago, peer ABB India Ltd, too, had stated that the 10% rise in its orders was due to a growing market for digitally enabled solutions, which helped improve efficiency and productivity for customers.

On the revenue front, Siemens met the Street’s forecasts, with 8% year-on-year growth in revenue to 3,550 crore. What’s more, all segments reported higher profitability, thanks to the restructuring that took place until a few quarters ago.

The energy management segment, which accounts for nearly one-fourth of total revenue, clocked a 232 basis point jump in Ebit (earnings before interest and tax) margin.

On the whole, operating efficiencies and the benefit of having short-cycle orders led to a margin beat. Ebitda (Ebit plus depreciation and amortization) margin rose 160 basis points from a year earlier to 11.8%, higher than Bloomberg’s consensus estimate of 10.7%.

Strong profit growth at the operating level trickled down to a 35% higher net profit, beating the Street’s estimates.

According to Edelweiss Securities Ltd, Siemens is emerging as a more scalable business over the long term, given its focus on digital solutions, smart products and building technologies that fit changing capex dynamics in the economy. Additionally, these verticals are less capital-intensive, which will boost return ratios, too.

On the flip side, Siemens’ parent company is on a restructuring path with a stringent cost-cutting exercise. Analysts are cautious about the recently announced spin-off of the power and gas divisions by Siemens AG, which they feel could impact revenue and profit growth in the near term in India.

[“source=livemint”]