(Over)seeing Bad Times

When the going gets tough, the tough get

going' goes the old clich‚. Siemens India is desperately trying to be the toughie and

get going. Ever since the company posted a loss of Rs155 crore in the 18 months to

September 1997, it has been taking many initiatives to pull itself out of the red.

No doubt, a few years back, it would have

been blasphemous to think about Siemens India, an arm of Germany-based Siemens AG, totting

up losses. The blue-eyed boy of India's corporate, misreading the market and posting

losses was just unthinkable. Well, so was Napoleon's defeat in the battle of Waterloo. The

company made heavy investments in the telecom and power sectors on the assumption that

these markets would open quickly in the post-liberalization era. What it failed to factor

in its analysis was the continuous government instability and the consequent delays on the

policy front. Wrong reading of the market and the results were there to see. High-interest

cost and poor returns on investments were major reasons for the poor performance. For

instance, for the year ending May 1998, interest cost (Rs130 crore) was around 7.3% of the

total sales (Rs1750 crore)

Getting tough



The huge losses made the

company hire the services of Booz-Allen & Hamilton to review its business portfolio.

The consultancy firm was to review the company's business portfolio of nearly 12 divisions

and five joint ventures by September 1998. The review was expected to be completed with a

strategic meeting between Booz-Allen, Siemens India and Siemens AG. However, the Indian

company remains tightlipped over the issue and maintains that the restructuring plans will

be made public only after the declaration of the annual results, which are expected by the

end of November 1998. Other measures to fight losses included infusion of fresh capital by

way of a preference issue last year of Rs150 crore.

This helped the company reduce its interest

cost, which has come down to Rs37 crore for the nine months ending June 1998 from Rs62.3

crore compared to the previous nine-month period. The company is also consolidating its

locational offices and marketing setups in the country to ensure better coordination of

activities. It is integrating its existing locations into new developing areas away from

the centers like Gurgaon and Kharghar (in Mumbai).

No doubt, the focus on restructuring,

paring down of cost and improvement in productivity and quality is putting the company

back on the profitability track. However, the big bang is expected after the finalization

of the Booz-Allen review. The parent company, Siemens AG, has already kicked off its

restructuring plans in the telecom and IT divisions in October this year with the merger

of Siemens Nixdorf, Siemens Private Networks and Siemens Public Network with Siemens

Public Communications Networks (SPCN). Though Siemens India refused to answer a DATAQUEST

questionnaire, market analysts opine that the company is likely to toe its parent's

restructuring plans. In 1997, the public telecom business of Siemens India has already

been spun off and integrated with SPCN. Following the restructuring, Siemens Nixdorf

Information System (India) is expected to be merged with SPCN. In line with the global

SPCN division's segmentation into three broad areas of information and communication

network, information and communication products and information and telecommunications

services, the private communication systems division is likely to be merged with SPCN

(India).

Moreover, a few divisions would be on the

block if Siemens AG's global plan on improving value is implemented in the country. The

directive: 'Shape up or ship out.' This implies that any division earning less than its

cost of capital, around 8.5% after taxes, may be on the chopping block. In the Indian

context, it is difficult to point out such divisions as the company's audited financial

performance is usually a consolidated one.

The company's annual results are expected

by the month end and as per its spokesperson, "All the issues will be declared after

the annual results. Till such time, we think, it's not right to discuss the company's

affairs."

In the final analysis, one can expect

Siemens India to eventually move out of the telecom and communications business which will

be handled by SPCN. Power generation and transmission and distribution-irrespective of the

slow government initiatives-medical engineering, industrial projects and products and

railway and transport divisions, among others, will be the important areas for the

company.