JP Morgan Questions Valuation Of Siemens India’s Mechanical Drives Business
Siemens India is losing a part of its full-service portfolio in this transaction to the parent company, JP Morgan said.
JP Morgan has flagged concerns about the valuations assigned to the Siemens Ltd.’s mechanical drives business as the company plans to transfer the unit to its German parent.
The intra-group sale and transfer to Flender Drives, a subsidiary of Siemens AG, values the unit at a fourth of Siemens India's enterprise value and price-to-book multiple, according to a note by JPMorgan. That puts minority shareholders at a disadvantage, the note stated.
The unit, which makes engines for wind and process industries, will be transferred to Siemens AG on slump sale basis for Rs 440 crore. The valuation was arrived at on the basis of an independent report conducted by Grant Thornton Bharat LLP in June 2020, according to a statement. The scheme, subject to approvals, is effective Jan. 1, 2021.
Siemens India has mechanical drives factories in Chennai and Kharagpur. In 2018-19, Flender Drives reported a revenue of Rs 683.8 crore and an operating loss of Rs 55.3 crore. According to its filings, the unit contributes about 5% to the total income from operations of Siemens India.
Siemens India had cash and bank balance of Rs 4,900 crore as of March 2020, as per its filings.
Potential growth in this business (mechanical drives) will require substantial capex and, moreover, there are no synergies with existing businesses of Siemens, Sunil Mathur, managing director and chief executive officer at Siemens India, said in an Aug. 26 statement. Keeping the interests of shareholders in mind, the board of Siemens India approved the sale of this business to Siemens AG which has also announced intention to spin off and publicly list this business, he said.
Siemens AG holds 75% stake in its India unit, according to latest data available on exchanges. Domestic institutions hold 14.29% stake, while the remaining 10.71% stake is held by non-institutional public shareholders.
JP Morgan doesn’t completely agree with Siemens India’s rationale of substantial capex requirement in the last 10 years. The company’s cumulative capex has been less than Rs 2,500 crore, it said. Given the mechanical drives application, Siemens India is losing a part of its full-service portfolio in this transaction to the parent company, it said.