Siemens has reported 18% growth in topline below the Street’s expectations. One could see growth in topline across all segments.
Losing shine
Lower aluminum prices have led Nalco and Hindalco to report disappointing results in the third quarter ended December 31, 2007. Nalco and Hindalco posted a decline of 42.5% and 15.7% year-on-year in their net profits at Rs329.4 crore and Rs542.7 crore respectively.
Nalco and Hindalco derive 60.3% and 38.2% of their gross revenues from aluminum business respectively. Aluminium prices on London Metal Exchange stood at $2,443 per tonne during Q3 of the current fiscal as against $2,723 per tonne in Q3 of the last fiscal.
Hindalco’s profitability was further hit by rupee appreciation, soaring global crude prices and 41% decline in treatment and refining charges (Tc/Rc) charges of copper. Hindalco derives the remaining share (61.8%) of its gross revenues from its copper business.
Revenues of Nalco declined by 23.4% yoy in Q3 to Rs1,109.31 crore and that of Hindalco 2.7% to Rs4,531.7 crore. Hindalco’s revenues declined by 9% quarter-on-quarter on account of lower price realisations.
Despite an increase of 34% yoy increase in alumina sales volumes, Nalco’s revenues were adversely hit due to 30% yoy decline in price realisations.
Needless to say, the dismal state of affairs surrounding the industry put considerable pressure on margins at all levels. Operating margins of Nalco declined to 39.7% from 58.3% in Q3 last year and that of Hindalco dropped to 17.6% from 22.4% in Q3 last year.
Apart from price realisation concerns, Nalco faced an increase of 47.4% in employee remuneration and Hindalco saw 9.4% rise in power and fuel costs. Lastly, Nalco’s net margins declined to 29.7% as against 39.5% in last year’s Q3.
This decrease comes when Nalco saw depreciation costs drop by 11% and tax outgo decline by 38.3%. Hindalco’s margins decreased to 12% from 13.8% in Q3 reflecting an increase of 95.7% in its other income, decline of 10.9% in its interest costs and 34.8% dip in its tax outgo.
Analysts expect aluminium prices to decline further on the back of anticipated surplus on account of commissioning of fresh capacities in China and Russia.
In case of Hindalco, some analysts maintain that if US slows down faster than expected, it could affect Novelis (acquired by Hindalco in February 2007) negatively. In the near-to-medium term, prospects for both the companies do not appear good. One can look at relatively better options in these good times.
On the margins
Siemens has reported 18% growth in topline below the Street’s expectations. One could see growth in topline across all segments except the discontinued automotive segment.
Topline growth was primarily led by power, automation & drives and industrial solutions & services segments. Profit after tax after adjusting for an exceptional item of Rs125 crore also declined by 35% to Rs73 crore from Rs98 crore. EBIT margin of power division is higher by 1.3 percentage points year on year (yoy) to 8.5%.
EBIT margin of automation division higher by 1.64 percentage points to 6.08%. Apart from improvement on low base, Siemens continues to have lowest margin among ABB, BHEL & Areva, although margins with ABB is not strictly comparable as the year ending is not the same for both the companies.
PBIDT margin in Q1 September ‘08 was flat at 7.82% flat compared to 7.18% in Q1 September ‘07 mainly due to loss in the transport division at EBIT levels.
In Q1 September ‘07, the EBIT margin of division was higher than both, power and transportation division. Also, the division accounted for 7.11% of revenue compared to 3.43% in Q1 Sept ‘07. PBT net of exceptional item and other income grew by 21% on yoy basis.
Exceptional income for the quarter ended December 31, 2007 was on account of profit on sale of building technologies segment of Rs1.1 crore and profit on sale of automotive segment of Rs123.5 crore.
Adjusted for Qatar order (Rs 3,600 crore) received in Q1 Sept ‘07, order inflow on yoy basis is higher by 25.17%. Unexecuted order value position as of December 31, 2007 was Rs9,368,6 crore as compared to last fiscal figure of Rs11,026.4 crore).
At the current market price of Rs1,646, the stock is available at 30x its Sep-09 earnings. Analysts feel ABB to be better bet than Siemens as valuation-wise it is not only cheaper but also will continue to have better margins.
Pallavi Pengonda (p_pallavi@dnaindia.net) & Sunder Subramanian
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