Siemens: Better late than never

16 Nov 2023 , 11:08 AM

Recommendation: Add

Target Price: Rs. 3,973

Analysts at IIFL Capital Services view this event positively for unlocking value for minority holders in India, similar to ABB India – Power Grids (Hitachi Energy) demerger, but perceive no near term implications on operations. With demerger timelines sometime away, analysts at IIFL Capital Services continue to prefer ABB India versus Siemens.

No impact from 18% stake sale by Siemens energy

Siemens AG will buy Siemens Energy’s 18% stake (currently 24%) in Siemens India for ~EUR 2.1 billion, 15% discount on the 5 day VWAP vs. market speculations of a 20-40% discount. This eliminates the near term uncertainty on the stock, with no impact as the transaction is between promoter group entities. These proceeds will address the near term guarantee requirements for Siemens Energy and help strengthen Parent’s balance-sheet in the backdrop of on-going crisis from Gamesa’s wind turbine failures.

Unbundling of Siemens in India is a good news

When Siemens Energy was formed in 2020, this vertical was retained in Siemens Ltd for administrative reasons. Pursuant to yesterday’s approval of stake sale by Siemens Energy, the unbundling process (legal separation) will now accelerate at Siemens, insulating the rest of businesses from potential risks over the longer term. Vertical demerger and listing is planned by December 2025. Post demerger, procedures will be put in place for Siemens Energy to acquire majority share in the demerged Energy business (5-year timeline earmarked from November 2023).

No change in view; unlocks value over medium term

Analysts at IIFL Capital Services do not perceive any operational impact as the business activities of Energy segment are clearly earmarked separately since 2020, thereby minimizing the timelines or complexities for this unbundling. Energy is an order book driven portfolio with concentration of exports, services and 11-12% EBIT margins with higher localization and manufacturing content and RoCE of ~46%. In 2 years, OPM of rest of Siemen’s portfolio too should scale and improve on profitability side by tailwinds in the capex cycle.