Siemens Will Sell Its Geared Motors Division To Siemens AG For 2000 Crore

BSE-listed Siemens Limited announced today that it is going to sell its low voltage motors and geared motors operations, as well as related customer support companies, to Siemens LDIPL, a wholly owned subsidiary of Siemens AG.

The transaction would be for Rs. 2,200 crore and would take effect on October 1, 2023. It included that the BOIs decided to consider distributing 100% of the price paid for the sale as a special dividend at the initial board meeting following the completion of the proposed deal.

An external impartial valuer performed the valuation. A category-I Merchant Lender also provided the company with a fair assessment. The audit committee’s recommendation for the proposed deal is based on the assessment performed by the neutral valuer.

“We will continue to streamline our business across high-growth sectors that have synergies with the rest of the businesses,” said Sunil Mathur, MD and CEO of Siemens Limited.

For fiscal year 2022, the company reported revenue from operations of Rs. 1,061 crore and a profit from operations of Rs. 132 crore. It is comparable to nearly 12.5% of revenue.

This accounts for roughly seven percent of the company’s revenue from operations and approximately 9% of the company’s profit from operations.

“This deal is an outcome of Siemens AG’s intention for carving out existing low-voltage motors as well as targeted motors businesses, among others, into a legally independent firm around the world,” the firm stated.

“It is based on Siemens AG’s plan to establish Innomotics, an integrated provider of motors and large drives.”

The carve-out in Germany is scheduled to be finished on July 1, 2023, as Innomotics GmbH will run as a legally distinct and autonomous company inside the Siemens Group.

The purchase price is 38 crore in cash and debt-free terms, subject to mutually agreed-upon changes between the two parties.

“With this purchase, we will be equipped to provide charging facilities that have been authorized and meet critical regulatory needs, as well as grow this up throughout the country for electric buses as well as additional uses.”

“So it’s a sector that we may explore and develop first in India, and then possibly as part of a global supply chain,” Mathur explained.

Separately, Siemens announced an agreement on Friday to acquire the EV part of Mumbai-based MTC Pvt Ltd. It will assist the company in meeting India’s growing need for charging electric vehicle infrastructure.

Mass-Tech designs, engineers, and manufactures an extensive selection of AC chargers including 30 to 300kW output DC chargers for diverse EV end applications. The purchase price is 38 crore in cash and debt-free terms, subject to mutually agreed-upon changes between the two parties.

“In several metros as well as Vande Bharat initiatives, we have two electricity projects. So, these are the core sectors into which we are moving, as well as our digital portfolios, where we offer solutions.”

Mathur stated that the company conducted a separate assessment of its operations, which resulted in a valuation range of 2,070 crore to 2,165 crore.

To safeguard the requirements of minority stockholders, the management agreed to raise the amount by 2,200 crores,” he explained. An independent banker assessed the appraisal and gave recommendations, and the board based its valuation calculations on those recommendations.

Siemens Ltd shares plunged more than 10% on May 22 after the company announced the sale of its low voltage motor and geared motor operations to a Siemens AG affiliate.

The stock plunged as much as 11% from its previous close, reaching a low of Rs 3,338. The stock traded at Rs 3,363 on the BSE at 10:06 a.m., down 9.45 percent, while India’s main Sensex increased 0.08% to 61,780 points.

Proposed valuations tend to assume a comparable future growth trajectory. “In our opinion, the business has solid market potential at the aggregate market level,” stated KIE in its most recent note.

“These variables, among other things, reduce corporate growth/value, accounting for 50% of RM costs such as stock-in-trade purchases,” according to Kotak research.

The business accounted for 7% of FY22 revenues and 9% of profits, with a 15X FY2022 EBITDA as well as 17X FY2022 earnings from operations valuation.

Although this segment is not deemed significant for Siemens’ Transmission and Railways’ prospects, its selling at a smaller entity value-to-sales (EV/sales) ratio led to an implicit loss for investors, according to Jefferies.

“However, we will keep a close eye on multiple if a more significant event occurs,” Jefferies wrote in a note to shareholders.

Meanwhile, brokerage company Nomura lowered the stock from Neutral to Reduced and raised its price objective to Rs 3,521 compared to Rs 3,008 per share. Concerns have been raised by the brokerage firm about the fairness of the valuation for the business being offered to the parent.

The Board additionally chose to explore distributing 100% of the sale consideration. It excludes the Capital Gains Tax or any additional applicable taxes, as a special dividend at the first board conference following the conclusion of the proposed deal.

Kotak forecasts a 7% drop in its face value and a 9% loss on the bottom line from the planned sale, despite a post-capital gains tax dividend of Rs 1,800 crores to shareholders.

According to Prabhudas Lilladher, the transaction will be subject to a 23% capital gains tax.

It stated that the separation of the motors business from the Digital industries segment will not affect execution synergies because Siemens’ competitive advantage is to deliver digitalization and automation remedies, whereas motors are commodities that can be outsourced.

Furthermore, Siemens AG owns the IPR for these items, therefore it makes sense to transfer assets.

Phillip Capital feels that the sale of the firm to Siemens AG has a detrimental impact on Indian minority shareholders because the rationale and values of the divestment appear to be unfair.

According to the report, Siemens’ management believes the LV motors industry will become commoditized in the medium term and will no longer correspond with their future ambitions.

According to Nuvama Institutional Equities, the tendency of selling lucrative divisions to its main at low valuations is ‘unfriendly’ to minority investors.

While the form of sale is not ideal (a third-party sale would be more transparent and equitable), Nuvama believes Siemens can provide best-in-class order inflow growth given its offerings in railroads and transmission.

Phillip Capital observed that the deal’s valuation, at 16.6 occasions EV/EBIT, looks to materially undervalue the business when compared to Siemens and ABB’s FY22 EV/EBIT of eighty-five times and 93 instances, respectively.

On the BSE, the stock plummeted 10% to a bottom of Rs 3,338.05. Despite this, Siemens’ stock is up 18.5% year to date.

Proofread & Published By Naveenika Chauhan