Siemens, a Shaky No. 1?

Its business in India boomed this year. But now rivals are circling, the slump is hurting, and the stock has dropped 70%

It was a spectacular year for Siemens Ltd. (SIEM.BO). For the past couple of years, the Mumbai-listed entity, in which German parent Siemens (SI) holds a 55% stake, capitalized on India's economic boom, building on the growing demand for infrastructure such as airports, power facilities, and ports. India is the fourth-largest operation for Siemens. Only Germany, the U.S., and China are bigger. For the year ending in September, profits rose 66%, to $135 million, on sales of $1.75 billion, up 71%. Exports to markets such as the Middle East rose 32%, to $570 million. That's what hoisted Siemens to the No. 1 slot, up from No. 4, in the Asia BusinessWeek 50, our annual ranking of the top Asian companies.

Staying at the top won't be easy, though. Armin Bruck, 44, who took over as managing director in January, has to grapple with tough times. The Indian economy is slowing down, competition is increasing, projects are getting delayed by manpower and material shortages, and Siemens' stock price is shrinking. Big-ticket infrastructure projects have virtually creaked to a halt, as New Delhi has other priorities in an election year. Global engineering heavyweights like Areva and ABB, and domestic players like Larsen & Toubro and the state-run Bharat Heavy Electricals have become more aggressive. And the market meltdown has pushed Siemens Ltd. shares down 70%, to $13, from $44 just a year ago.

Concerned Analysts

No wonder Bruck, who replaced Jürgen Schubert, is impatient. "We don't have time to look at India over the next five to 10 years. We have to do it now," he says. Bruck's target is to double Siemens India's $2.5 billion in revenue in the next two years. To do that, Bruck is exploring low-end volume business across industries and sectors, tapping new export markets, and using India as a sourcing base for regional and global clients.

Bruck, a power expert, is banking on each of Siemens' three main businesses—energy, industry, and health care—and says he is not partial to any of them. Analysts are wary, though. They worry that Siemens Ltd. piggybacks on the parent to bag big orders in India and neighboring countries, offering discounts as high as 18% to win business. They also gripe that the company's executives meet analysts only once a year. An Aug. 29 Kotak Institutional Equities' Daily report says: "Disclosure standards have hit a new low." Bruck says he will meet analysts more often. "We are as open as possible, I guess much more than in the past," he says.

But analysts aren't convinced. A government-led slowdown on infrastructure projects before next year's election could affect growth and margins. Already, year-on-year revenue growth for the first three quarters of this year is a mere 5.16%, compared with more than 80% growth last year. Operating margins, too, are marginally down, to 9% from 10%. "I don't see the numbers recovering in the next 12 to 18 months. I would be very cautious," says Priyanko Panja, research head at Mangal Keshav Securities, a Mumbai brokerage.

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