Siemens share price targets see cuts as minority shareholders hit by 'unfriendly' move. Key details

Shares of Siemens took a beating in Monday's trade after the company sold its low voltage (LV) motors and geared motors business segment to a parent entity for Rs 2,200 crore at 16 times FY22 earnings per share, on the rationale of low growth and falling operating profit margins. Analysts noted that the segment accounted for 7 per cent of sales and 9 per cent profits for FY22.

Phillip Capital believes the sale of the business to Siemens AG has negative implication for Indian minority shareholders, as the rationale and the valuations of the divesture seem unfair. It said Siemens' management argues that the LV motors business would become commoditised over medium term and no longer align with their future plans.

"However, this business is short cycle in nature and Siemens has Ebitda margins of 12.5 per cent with an asset light model having negative capital employed. Ironically, this move is happening at a time when domestic market is showing strong demand tailwinds for LV Motors & other dominant players like CG Power, ABB India are consolidating their market share by expanding capacities & also investing into motor’s technology for higher energy efficiency."

Phillip Capital noted that the valuation of the deal, at 16.6 times EV/EBIT, appears to undervalue the business materially compared to Siemen and ABB’s FY22 EV/Ebit of 85 times and 93 times, respectively

The stock fell 10 per cent to hit a low of Rs 3,338.05 on BSE. Despite this, Siemens shares are up 18.5 per cent year-to-date.

"Considering these concerns, we have lowered our multiple SOTP based implied multiple to 50 times to reflect the potential implications faced by Indian minority shareholders due to the sale and restructuring decisions made by Siemens AG. Consequently, we cut our FY24/ FY25 earnings estimates by 7 per cent/ 8 per cent respectively, accounting for sale of a LV motors biz, subject to approval by minority shareholders," Phillip Capital said suggesting a revised target of Rs 3,477 for the stock.

This trend of selling profitable units to its parent at low valuations is ‘unfriendly’ to minority investors, said Nuvama Institutional Equities. While mode of sale is not ideal -- a third party sale would have been more transparent and fair, Nuvama said it still believes Siemens can deliver best in-class order inflow growth, given its offerings across railways and transmission.

"We lower our EPS by 5 per cent for FY23E and 9 per cent in FY24E on the sale of high margin LV motors and geared business. Accordingly, we cut our target price  by 9 per cent to Rs 4,120 on 65 times (unchanged) March 2025E P/E. We reiterate 'Accumulate' as we expect an earnings CAGR of 24 per cent over FY22-25E and a 15 per cent ROE over FY23-24E as we enter into a multi-year capex cycle of public and private capex. Siemens, with its diversified portfolio, technological edge and parent support, would be a key beneficiary," Elara Securities said .

This brokerage noted that the proceeds from the sale would be handed out as 100 per cent dividend to shareholders. Siemens AG, Elara said, intends to carve out the LV and geared business from across its group companies globally and operate a legally separate and independent company within the Siemens Group, namely Innomotics GmbH.

Prabhudas Lilladher said the transaction is expected to attract capital gain tax of 23 per cent. It said the carving out of the motors business from Digital industries segment, won’t have any impact on execution synergy, as Siemen's competitive edge is to provide digitalisation and automation solutions, whereas motors which are commodities product can be outsourced. Also, the intellectual property rights (IPR) for these products are with Siemens AG and it makes sense to transfer assets. LV motors finds application in Machine building, metals, F&B, chemicals, power, minerals etc," it said.

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