 "Siemens margins to go up after divestment")
On a day when the market traded flat, Siemens, too, did not react much to the sale of its health-care business. The Street feels that other than the improvement in its operating margins and cash balances (which Siemens can invest in existing businesses), the deal may not result in major upside. Kotak Institutional Research saw limited financial impact and the estimated addition of Rs 1,250 crore to cash reserves of Siemens would broadly make up for the absence of the health-care business. However, margins are likely to improve from 9.7 per cent to 11 per cent by FY18.
Siemens has transferred its health-care business for Rs 3,050 crore to Siemens Healthcare, a wholly-owned subsidiary of Siemens AG (parent company holds 75 per cent stake in Siemens Limited). After distributing half the proceeds (after taxes) as dividend (estimated at Rs 30 per share after tax), Siemens will invest the remaining in its core power and energy management businesses, which will account for half the revenues (excluding health-care). These and railways businesses are already reeling under competition from foreign players, so the cash infusion should help.
Analysts say the sale move is positive. Emkay Global Financial Services says it was crucial to separate the health-care business from Siemens Limited to allocate capital to its core business. "Hardly any synergies between health-care and other business segments of Siemens," Emkay says. Analysts say even if the health-care business becomes competitive after the planned capital investment (by Siemens AG) over the long term, earnings contribution is unlikely to be material, given the competition.
For now, given its expensive valuations at 57 times FY16 price-earnings, 18 of 25 analysts polled by Bloomberg suggest selling Siemens stock. Growth from core businesses could provide upside to the stock.
Siemens has transferred its health-care business for Rs 3,050 crore to Siemens Healthcare, a wholly-owned subsidiary of Siemens AG (parent company holds 75 per cent stake in Siemens Limited). After distributing half the proceeds (after taxes) as dividend (estimated at Rs 30 per share after tax), Siemens will invest the remaining in its core power and energy management businesses, which will account for half the revenues (excluding health-care). These and railways businesses are already reeling under competition from foreign players, so the cash infusion should help.
Analysts say the sale move is positive. Emkay Global Financial Services says it was crucial to separate the health-care business from Siemens Limited to allocate capital to its core business. "Hardly any synergies between health-care and other business segments of Siemens," Emkay says. Analysts say even if the health-care business becomes competitive after the planned capital investment (by Siemens AG) over the long term, earnings contribution is unlikely to be material, given the competition.
For now, given its expensive valuations at 57 times FY16 price-earnings, 18 of 25 analysts polled by Bloomberg suggest selling Siemens stock. Growth from core businesses could provide upside to the stock.