Siemens shares: Minority investors reject biz rejig; where is stock headed?

Siemens' minority shareholders have turned down the board’s recent proposal on the slump sale of low voltage motors, geared motors & customer service businesses, which was a part of its parent's global business realignment. This, foreign brokerage UBS said, is in line with expectations, as the investor decision shows strong and positive perception of Siemens' motors business in India. The country is a highly attractive market for low voltage products for any global player, the brokerage said adding that whether the deal consideration now gets upsized or scrapped remains to be seen.

Given Siemens' sharp underperformance against ABB post the divestment decision, foreign brokerage UBS believes investors could react positively to the news flow as it implies either better valuation for the motors business or status quo.

Siemens shares were, however, trading 2.46 per cent lower at Rs 3,900.85 on BSE. UBS has a 12-month target of Rs 4,500 on the stock.

"Our consensus-leading new order run rate estimate remains, as do our 'Buy' rating and Rs 4,500 price target (62x 12m forward PE, implying a 25 per cent discount to ABB," the brokerage said.

UBS said if the motors business remains, the profitability of the digital industries segment will need to be reassessed, depending on how royalty and technology support changes with the parent. Alternatively if Siemens is able to get shareholders' approval for divestment, one would need to assess the impact of that divestment on Siemens product portfolio & solutions for customers, and its pricing ability in the market against peers.

"Given solid competitive peers like ABB (Buy)/CG Power (not rated) etc & the value-centric India market, we believe Siemens in India (SIEM & unlisted entities) will have little to no headroom to dilute the competitiveness of its offerings," UBS said.

Based on its investor discussions, UBS said investors have an improved perception and confidence in Siemens' Indian leadership team and its proactive growth investments ahead of peers in the highly scalable smart infra & mobility segment.

"On the motors business, concerns tend to be more on valuation than on the potential divestment itself or its possible near term impact on SIEM's margins. Siemens has enough levers to neutralise any adverse impact of divestment on total addressable market (TAM), growth & profitability in the long run. Technology & IP for motors business is with the parent; what if fully owned parent entities in India get better support on motors vs Siemens incrementally," UBS said.

 

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