New Delhi, Nov 16: Siemens seems poised for better times ahead post-turnaround. Improvement in sales growth, higher margins and with no exceptional expenditure forseen in the next fiscal, Siemens can prove to be a good investment bet. The stock is currently undergoing a correction and has fallen from its all-time high of Rs 512 to the current level of Rs 449. Entry at declines can provide decent returns in the long-term. In fiscal 1999, Siemens substantially reduced its interest burden, which will be further brought down this year thanks to the Rs 141.9 crore rights issue.
Second, as the economy starts showing signs of a turnaround, turnover should pick up. In fiscal 1999, turnover grew by only 5 per cent, however, the company expects to fare much better in this fiscal. For the future, Siemens has decided to focus on higher volumes and cutting costs to scale new heights.
Apart from the turnaround (a net profit before extraordinary items of Rs 27 crore as against a loss of Rs 13 crore in the previous fiscal), the FY 1999 performance has thrown up another important fact, which augurs well for the FY 1999. Despite there being no let-down in the economic recession for the whole of FY 1999, Siemens' order-book position saw a sharp rise of over 50 per cent (what brought down the turnover, however, was the lower realisation in the company's electrical equipment and systems business).
If the company can bag new orders in tough times, an improvement in demand should result in a much higher sales growth. Plus, with expenditure being reined-in (which is the stated objective of the company), margins at the operating level should improve in the current fiscal. In FY 1999, OPM was up marginally at 8.6 per cent.
In FY 1999, the bottomline has been boosted by lower interest costs as well as provision for depreciation. On a 5.48 per cent growth in sales, operating profit has risen by 13 per cent. However, thanks to the 40 per cent drop in interest cost and 24 per cent lower provisioning, Siemens managed to earn a a net profit of Rs 35.1 crore against a loss of Rs 56 crore in FY 1998.
The profit has also been propped up by exceptional items of Rs 10.47 crore which includes income from the restructuring of business operations and adjustment on disposal of assets. Post-rights, the company's equity capital has gone up to Rs 35.3 crore from Rs 28.39 crore earlier. Siemens had tapped the market last month with a rights issue of 70.99 lakh shares at a premium of 190 per share. Siemens has a presence in the medical engineering, telecommunication, power generation/transmission/distribution, switchgears, automation as well as software.
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