An improvement of Rs 99.61 crore in the bottomline in a year (comparing the 18-month period of the previous year with the current year) when the whole economy has been affected has been achieved by some strong financial changes. Savings in interest costs for the 18-month period between September 1997 and September 1998 is to the tune of Rs 75.68 crore (76 per cent of the improvement in bottomline during the period).

The drop in interest cost has been due to some major financial restructuring in the company. Firstly, the company has issued preference shares worthRs 107 crore on a private-placement basis. Secondly, the company retired some of its high-cost debts, which reduced from Rs 600 crore in 1996 to Rs 226.5 crore in 1997-98. The debt was reduced from the proceeds of sale of properties, sale and leaseback of the company's IT equipment business and other restructuring activities. Thirdly, the company has also benefited from credit extension from its parent company.

On the operational front, the company does not seem to have benefited much. Though its employees have come down from 5,775 to 5,228 within a year, its operating margins have hardly shown any improvement. Margins have improved from 2.57 per cent to 2.8 per cent.

What does the future hold in store for Siemens? The management is blunt enough to say that nothing much can be expected in the near future. Turnaround can only be expected after September 1999, that too if the economy does not slip any further. The company's new order position also justifies this fact. New orders have dropped by 22 per centto Rs 838.3 crore. But the company is working overtime to meet the turnaround deadline.

Siemens is in the midst of restructuring, with increased stress on sales and service. Lot of things are going on simultaneously in the company. Investments, divestments, reorganisation, re-engineering, introduction of new projects (manufactured or imported) as well as phasing out of obsolete products. As per the four-point program announced by the company for turnaround, it has identified 102 business fields, and has launched 118 sub-projects. However, Siemens managing director Juergen Schubert agreed that the factories are still an area of concern.

Newsreports had earlier said that Siemens was recasting its operations to improve cost structure and productivity across all its plants in the country. This was as per the Booz Allen Hamilton study, which said that the company had decided to scale down operations at some units and substitute these with imports from other countries including China. The Booz Allen study foundthe company's costs of production were one of the highest in the world. The parent company has been supplying its technology to China instead of India, and has been importing Siemens products from China in an attempt to regulate prices and demand of products in India. This is in line with the way most of the multinationals in the capital goods sector operate. Being global players they work out the logistics of procuring goods from the low cost producing countries.

Will that mean Siemens will import most of its requirement? The answer is no. It is restructuring its operation to cut cost as well as to be more customer oriented. A case in the point is that of its medical division. The division is being restructured from an equipment supplier to a hospital systems provider and consultant, which also includes development of specialised medical software. The company is phasing out its high-cost Worli unit and is, instead, concentrating on its Worli plant.

What does all this restructuring have to do with theshareholders? As the managing director has himself admitted, a turnaround can only be expected after September 1999. There is little merit in holding the stock for the short term. However, as has been the market psychology, it has started discounting the foreseeable future. Siemens, after announcement of the result, has gained from Rs 183 to Rs 190 per share.