Street unhappy over Siemens' plan to sell its low-voltage motor unit

Stock plunges 8.35%; analysts divided over electrical equipment maker's prospects due to high valuations

The transfer by Siemens India of its low voltage (LV) motor unit to a subsidiary of its MNC parent Siemens AG has been viewed mostly unfavourably by minority investors.

The division generated revenue of Rs 1,060 crore with an EBIT (earnings before interest and tax) of Rs 130 crore in the 2021-22 financial year (FY22). The earnings per share or EPS of this business was estimated to be at around Rs 3.3 in FY22 (Siemens' accounting year is October-September).

The LV motors unit, which was part of the digital industries (DI) segment, represented 29 per cent of overall DI sales and 37 per cent of DI segment’s EBIT in FY22. At the company level, LV motors and geared motors business represents 7 per cent of overall sales and 9.3 per cent of EBIT in FY22. The sale at a price of Rs 2,200 crore implies a valuation at 2.1x FY22 sales and 17x FY22 EBIT. Proceeds would be handed out as 100 per cent dividend to shareholders after Capital Gains Tax, which could be around 25 per cent, implying Rs 1,700 crore would be the residue. 

Siemens AG holds the intellectual property rights (IPR) of the motor business and has future plans to monetise these rights. The parent intends to carve out the LV and geared business from across its group companies globally and operate these as a legally separate and independent company, Innomotics GmbH.

The valuation of the deal, appears to undervalue the LV motors business materially, given the growth prospects. Assuming shareholder approval, the fair value of Siemens India would be reduced by around 7-8 per cent on a sum of the parts basis.

Siemens India has however made a strong bet on the EV (electric vehicle) charging infrastructure rollout, by the acquisition of the EV division of Mumbai-based Mass-Tech Controls for Rs 38 crore at a valuation of 2.3x FY23 sales. The EV division is engaged in the design, engineering, and manufacturing of a wide range of AC and 30-300kW capacity DC chargers.

Currently, Siemens India imports EV chargers from its parent and this EV charger business would be part of the smart infra segment. This segment reported a revenue of only Rs 16.7 crore in FY22, and it has the potential to scale up to Rs 500 – Rs 1,000 crore, according to estimates.

There are also expectations of substantial orders from Indian Railways in the areas of Vande Bharat trains, electrification projects, and signalling equipment. Orders for locomotives are anticipated, and the metro market will be addressed on a case-by-case basis. Siemens' introduction of an industrial 5G router is a significant move indicating its participation in the digitalisation of manufacturing. The new router is an essential component for real-time monitoring and control of industrial systems and the launch of this router indicates Siemens remains a pioneer in this regard. 

The stock lost 8.35 per cent on the BSE on Monday due to heavy selling after the announcement and is down to Rs 3,399.20. per share. Analysts remain divided on the future prospects mainly because the closely-held company’s valuation has always been high. Target prices range between Rs 3,200 (about 6 per cent below current market price) to around Rs 4,150 which could be a reasonable upside. The stock had run up to a recent (May 12) high of Rs 3,938 from its 52-week low of Rs 2,250.