SIEMENS INDIA : Add Siemens To Power Your Portfolio
Siemens India is a flagship company of Siemens AG (Germany). It is an integrated technology provider and one of the leading powerhouses in electronics and electrical engineering across the country.
Siemens India is a flagship company of Siemens AG (Germany). It is an integrated technology provider and one of the leading powerhouses in electronics and electrical engineering across the country. The company mainly operates in energy and infrastructure including transmission and distribution, automation, digitization and urban infrastructure, etc. It is popularly known as the inventor, innovator and implementer of leading-edge technology-enabled solutions functional in the core business segments. The company manufactures steam turbines, turbo compressors, high-voltage switchgears (circuit breakers, disconnectors and gasinsulated switchgears), switchboards, remote monitoring systems (RMS), fire detectors and suppression systems, motors, and generators. While the company continues to launch new products at regular intervals, it always strives to maintain its focus on electrification, automation, and digitization.
Industry Overview
During the second half of FY19, the pace of economic activity in India slowed down, with the growth rate dropping to 6.2 per cent. Even as conditions in the global economy turned unfavorable, infrastructure space such as power, telecommunications and roads has witnessed a significant and continuous rise in credit deployment by financial institutions over the last few years. The momentum for renewable power addition towards the target of 175 GW by 2022 in the domestic power sector slowed down in FY19. Renewable markets, especially the solar PV-based ones, have been maturing as policies continue to be put in place to bring competitiveness and confidence amongst domestic players. In the global markets, big companies, operating in the capital goods manufacturing sector are undergoing major changes. To focus and strengthen the core businesses, companies have gone for deconglomeration and strategic acquisitions, which led to a realignment of their portfolios. With developments currently taking place capital goods markets may witness oligopolistic plays dominating the business scenario in the future.
Siemens has a consumer-oriented division setup which includes:
Digital Factory
Under the digital factory division, Siemens offers software products and automation technologies for industrial applications, which cover the entire product life-cycle from product design and production to after-sales service for manufacturing industries. During the financial year, the division witnessed an order pick-up in automotive, tyre, food and beverage related segments. Amid lower capital expenditure, it was able to maintain steady growth. For the company’s financial year ended September 30th, 2018, the new orders received by the division went up by 16.8 per cent to Rs.2,304.2 crore. During the same period, sales increased by 18.4 per cent to Rs.2,265.4 crore. It gained a profit of Rs.196.2 crore, up by 59.5 per cent from Rs.123 crore achieved in the previous year. In terms of the future, the growth in this division will be boosted by a productionled progress and an increased uptake of digitalization in the industry. Based on the MindSphere which is an open IoT cloud platform, the division can expect a significant rise in the demand for applications.
Process Industries & Drives
In its process industries and drives division, Siemens offers a comprehensive portfolio for industrial applications and solutions in the field of automation and drives for process industries, such as chemical, pharmaceuticals, food and beverages, water and wastewater, mining, oil and gas, cement, and steel.
As a result of major investments by the government in roads, highways, railways and irrigation projects, the capacity utilization improved substantially. The company received a big order from the Indian Navy to set up the first-ever technology induction project with the Medium Voltage (MW) Lab. It also received an order from BHEL for the government of Telangana’s Kaleshwaram Lift irrigation Project which included communication and instrumentation package for three pumping stations and SINAMICS GL150 static frequency converter.
For the financial year ended 2018, new orders went up by 8.8 per cent to Rs.2,137.9 crore. Sales also increased by 8.6 per cent to Rs.1,919.2 crore. The company gained a net profit of Rs.76.9 crore thus rising by 41.1 per cent from Rs.54.5 crore in the last year. This division is expected to get a growth momentum in the near future, as various companies are in the process of making themselves a digital enterprise. For the next few years, Siemens expects to receive orders from the defense sector for diesel-electric propulsion of large ships, metals and mining, paper and other products.
Mobility
The mobility division of Siemens supplies solutions for passenger and freight transportation, including rail vehicles, rail automation, and rail electrification systems. It is mainly operating in mainline and metro railways, covering the entire rail infrastructure that includes signaling, electrification, rolling stock components and systems. Major disruptions were experienced in the rail market due to a 100 per cent electrification policy of the Indian Railways for phasing out of diesel-electric locomotives and switching to the European Train Control System for all rail signaling and safety. As these events affected the company’s mobility division, its sales dropped by 17.6 per cent toRs.976.4 crore.
On the other hand, the division benefited from expansion in metro rail plans leading to acquisitions of various projects for the same. The division received various orders related to metro electrification works thus broadening its order book. The division received new orders amounting to Rs.1,480.9 crore for the financial year ended 2018, an increase of 18.9 per cent. It gained a net profit of Rs.98.5 crore, up by 9.8 per cent from Rs.90.3 crore attained in the previous year.
Building Technologies
The building technologies division of Siemens provides solutions for safe, secure and energy-efficient infrastructure and buildings. It offers solutions for various applications such as fire safety, building automation, heating, ventilation, air conditioning, and energy management. Investments by the government and corporates into technologies, focusing on improving fire safety and surveillance, building management systems, etc. are responsible for the demand growth. The building technologies division implemented its energy efficiency solution, ‘Demand Flow’, for many of its hospitality consumers in a bid to help them reduce power consumption further leading to lower energy costs and increased savings. The division’s new order book increased by 26.3 per cent to Rs.594.2 crore with sales amounting to Rs.490.7 crore thereby registering a growth of 15.7 per cent. The net profit was Rs.44.4 crore, up by 53.63 per cent from Rs.28.9 crore in the previous year. An increase in private-investments and government-led projects can support demand growth. The company believes that its growth areas can be identified in digitization and energy efficiency opportunities in hotels, airports, and industries.
Energy Management
As a part of the energy management division, Siemens supplies products, solutions and services for the transmission and distribution of electrical energy. Its electrification portfolio ranges from low voltage products for domestic electrification to medium voltage distribution and ultra-high voltage transmission grids. It also covers automation and digitization of products and solutions for central and state utilities, private transmission and distribution system operators. As investments reduced from utilities, the market for energy management remained highly competitive during the financial year. Despite receiving orders related to Smart City works and from powerhouse giants such as Power Grid Corporation, Tata Power, various State Electricity boards, its order book registered a decrease of 24.9 per cent to Rs.4,509.6 crore in new orders received during the financial year 2018. Even then the sales increased by 18.7 per cent to Rs.5,159.8 crore, while net profit rose by nearly 30 per cent to Rs.420.3 crore from Rs.323.4 crore, gained in the previous year.
Power and Gas
The power and gas division offers products and solutions for reliable, efficient and clean power generation from fossil fuels and also for oil and gas applications. The division’s customers include utilities, independent power unit, engineering, procurement and construction (EPC) companies and businesses involved in the oil and gas, sugar and cement sectors. This division is Siemens' most profitable division. Despite challenging domestic conditions, power and gas division observed a continuous order growth driven by industrial (small) steam turbines in the domestic and foreign markets. The company made its first replacement parts 3D-printed from metal for an industrial steam turbine.
For the financial year 2018, new orders decreased by 7.1 per cent as the power sector in India witnessed a surplus power equipment manufacturing capacities with thermal power plants operating at low plant load factors. The sales went up by 4.1 per cent to Rs.1,480.7 crore. It gained a net profit of Rs.246 cores for the period, an increase of 22.08 per cent compared to the net profit of Rs.201.5 crore gained in the previous year. Initiatives implemented by the government of India are expected to drive the demand for this division such as ‘Power for All’, reduction in emission DS through green energy and electric vehicles. The company uses its local capabilities to provide engineering for global projects and manufactures steam turbines for exports as well.
Financial Performance
For the quarter ended June 30th, 2019, the company’s net sales increased by 4.74 per cent to Rs.3,128.1 crore from net sales of Rs.2,986.4 crore for the quarter ended June 30th, 2018. Despite a difficult quarter, the company focused on liquidity management which allowed it to secure orders worth Rs.30.2 billion. For the quarter ended June 30th, 2019, its PBDT rose by 17.55 per cent and was Rs.439.3 crore as compared to Rs.373.7 crore in the same quarter of the previous fiscal year. As the profitability is driven by the gas and power division and the mobility division, the company reported a 21.35 per cent gain in its net profit and reached Rs.250.1 crore in the quarter ended June 30, 2019, from the net profit of Rs.206.1 crore gained in the corresponding quarter of the previous fiscal year.
As for the revenue for the quarter ended June 30th, 2019, the gas and power division posted a revenue of Rs.1,131.4 crore, smart infrastructure was up by 1.22 per cent YoY to Rs.921.8 crore, followed by the mobility division, up by 16.79 per cent YoY to Rs.249 crore and the digital industries division, up by 5.85 per cent YoY to Rs.627.8 crore. Amongst all divisions, the gas and power division gained a maximum profit of Rs.154.3 crore, followed by the smart infrastructure and the mobility division.
For the financial year ended September 30th, 2018, Siemens posted the net sales of Rs.12,364 crore which is an increase of 11.17 per cent compared to net sales of Rs.11,121.9 crore, recorded in the financial year ended September 30th, 2017. The PBDT stood at Rs.1,599 crore, thus posting a decrease of 14.33 per cent for the financial year ended September 30th, 2018, compared to Rs.1,866.8 crore for the financial year ended September 30th, 2017. The company gained a net profit of Rs.901.2 crore during the financial year ended September 30th, 2019, depicting a fall of 20.72 per cent compared to the net profit of Rs.1,136.7 crore gained during the financial year ended September 30th, 2017.
CONCLUSION
Siemens faces risks from the slowing of private and public sector capex due to a tight liquidity environment. Initiatives by the government implemented to boost demand in the economy will support growth in infrastructural activities. As the government invests more in gas and power, the company should experience an increase in the inflow of orders. All along, metro projects being executed throughout India will provide growth support for its mobility division, which awaits clarity on the sale of the division which has been currently put on hold.
The growth momentum for the company is expected to remain positive due to increase in project opportunities across hospitality, airports and commercial spaces. With the company's increasing focus on the adoption of digitalization and appropriate cost productivity management, healthy financial valuations are projected by the company going forward. Considering the scope of an improvement in the operating performance and gradual recovery in capex spending, we recommend our investor readers to BUY.