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Stuck in a Rut

The project-drive business of Siemens India has been down in all of the company’s key verticals…

Siemens India is a classic representation of the malaise that has set upon the domestic capital goods players. Sales even for this MNC subsidiary were flat in the latest quarter (June 2012), order book was down 16 per cent (y-o-y) and the company was not able to grab any big ticket orders in the said quarter. According to the management, project-driven business in energy, infrastructure and industrial segment – all the company’s key verticals – are down.

The poor operating environment has also taken its toll on margins and future projects. While delayed deliveries and cost overruns saw Ebitda margins down at 3.5 per cent, the company has put on hold its investment in its wind power factory in which it has already invested Rs 130 crore. The company may have to book impairment charges if the environment does not improve soon.

The margin picture is so dismal that things look depressing at where they stand. Energy segment (constituting 56 per cent of Ebit) saw margins decline 7 per cent (y-o-y). Industry segment (20 per cent of EBIT) margins declined 3 per cent and infrastructure (20 per cent of EBIT) operated at a loss of Rs 27.4 crore. Analysts tracking the company say further write-offs could therefore be a real possibility. The company has not won any major orders in the energy segment while industry saw a muted 4 per cent growth in revenues. Analysts further say the company could see order inflow decline as much as 20 per cent this year.

Till the sector sees a resurgence, the outlook for companies like Siemens remains poor. There are no large orders going around, the volume growth picture is bleak and poor margins could continue to haunt the company.