Siemens’ Acquisition Of C&S Electric To Bolster Its Portfolio In India, Brokerages Say

Siemens Ltd.’s plan to acquire Delhi-based C&S Electric Ltd. will bolster its presence in the low-voltage switchgear business, especially in the building segment where it has limited presence, brokerages said.

The German engineering conglomerate will buy 99.22 percent stake in C&S Electric in an all-cash deal for an enterprise value of Rs 2,100 crore, according to a press release. The acquisition is likely to be completed by December 2020.

The acquisition will bolster our portfolio not only in India, but also for export to competitive international markets in line with our growth strategy, Sunil Mathur, managing director and chief executive officer at Siemens India, said in a statement.

As part of the deal, Siemens will get Indian operations of C&S Electric’s low-voltage switchgear components and panels, low- and medium-voltage power busbars as well as protection and metering devices businesses. Businesses such as medium-voltage switchgear and package sub-station, lighting, diesel generating sets, among others will be retained by the promoters of C&S Electric, the statement said.

The acquisition paves the way for Siemens to enter the value segment armed with a strong and established player in the low-voltage switchgear and busbars business, Amit Mahawar, analyst at Edelweiss, said in a report.

Mahawar, however, said he is awaiting clarity on deal valuations but believes that it’s a step in the right direction as it exposes Siemens to a high-growth revenue stream and expand its target market.

Agreed, HDFC Securities’ analyst Parikshit Kandpal. While Siemens low-voltage products positioning is at the premium-end, the C&S portfolio caters to value market, he said, adding that this makes the product line complementary and hence won’t cannibalise the current low-voltage revenue pool.

The acquisition, according to JP Morgan’s Sumit Kishore, will address the rising demand for low-voltage distribution in India and is a good use of surplus cash on the books for Siemens. The deal valuation of 15x FY19 EV/Ebitda is at a steep discount to Siemens rich multiple of 36x, Kishore said.

According to Motilal Oswal Financial Services, the company’s distribution network is weaker compared to other Tier-I brands such as Schneider Electric SE, Larsen & Toubro Ltd. and ABB Ltd.

Nilesh Bhaiya, analyst at Motilal Oswal, said the acquisition is a reaction to the fear of losing market share in the switchgear business, especially after Schneider’s acquisition of L&T’s portfolio. Bhaiya’s channel checks showed that C&S Electric’s products sell at 7-8 percent discount to Tier-I brands and lack scope of automation currently.

The inorganic way to acquire a Tier-II brand is clearly “return on invested capital dilutive” as Siemens’ RoIC profile is around 30 percent versus 11.5 percent of C&S Electric, Bhaiya said, pointing out that the Siemens-C&S deal is “expensive”. The acquisition implies transaction multiple for FY19 EV/sales at 1.7x, EV/Ebitda at 17.9x and price-to-earnings at 36x, he said.

C&S Electric reported a turnover of Rs 1,241 crore for financial year 2018-19. The switchgear maker’s Ebitda stood at Rs 120 crore.

Shares of Siemens Ltd. halted their two-day gaining streak. The stock fell as much as 0.8 percent to Rs 1,611.25. That compared with 0.37 percent fall in the NSE Nifty 50 Index.