Brokerage firm Kotak expects a 7% cut in its face value on loss of 9% of bottom-line, against the post-capital gains tax payout of Rs 1,800 crore to shareholders from the proposed transaction.
Shares of Siemens Ltd fell over 10 percent on May 22 after the firm said its board approved the sale of low voltage motors and geared motors businesses to a Siemens AG subsidiary — Siemens Large Drives India — for Rs 2,200 crore.
The stock hit a low of Rs 3,338 and fell as much as 11 percent from its previous close. At 10.06am, the stock was trading at Rs 3,363 on BSE, down 9.45 percent while India’s benchmark Sensex rose 0.08 percent to 61,780 points.
“In doing so, Siemens is letting go a business with outsourced manufacturing that has grown at mid-to-single-digit CAGR over the past decade. Proposed valuations appear to consider a similar growth trajectory in the future. The business at an aggregate market level has good market prospects in our view,” said Kotak Institutional Equities in its latest note.
“We retain Rs 3,200 FV while noting the case for Rs 3,000 FV if this transaction goes through. We build in a 15% lower multiple for SIEM versus what the Street builds. These factors, among other things, lower growth/value of businesses contributing to 50% of RM cost that is purchase of stock-in-trade,” Kotak report added.
The Board of Directors of Siemens Limited has approved the sale and the transfer of low voltage motors and geared motors businesses, including related customer service business to Siemens Large Drives India Pvt Ltd, an entity wholly owned by Siemens AG, for a consideration of Rs 2,200 crore with effect from October 1, 2023, a company statement said.
The segment was 7% of FY22 sales and 9% of profits valued at 15X FY2022 EBITDA and 17X FY2022 profit from operations. Although this segment is not considered significant for Siemens’ growth prospects in Transmission and Railways, its sale at a lower enterprise value-to-sales (EV/sales) ratio resulted in an implied loss of Rs189 for investors, Jefferries noted.
“As strong double-digit order flow and profit growth continues, and given this is a smaller division, this is likely to have only a temporary stock impact. However, we will be watchful on multiple should a more meaningful event occur,” Jefferies said in a note to investors.
Meanwhile brokerage firm Nomura has downgraded the stock to reduce from Neutral and kept target price to Rs 3,521 from Rs 3,008 a share. The brokerage firm said concerns arise on fairness of valuation for business being sold to the parent.
The Board has also decided to consider the distribution of 100 per cent of the sale consideration as reduced by applicable Capital Gains Tax and any other applicable taxes, if any, on the transaction, as a special dividend, at the first board meeting after the completion of the proposed transaction.
Brokerage firm Kotak expects a 7% cut in its face value on loss of 9% of bottom-line against the post-capital gains tax payout of Rs 1,800 crore to shareholders from the proposed transaction. “We continue to value SIEM at 47X two-year forward earnings, 15% discount to Street’s multiple and that of ABB. Such is the extent of rerating over and above that of ABB that SIEM saw over the past 21 months, over which it underperformed ABB on EBITDA growth,” Kotak report added.
