Siemens, the multinational conglomerate, witnessed a sharp decline in its stock price following the announcement of its decision to sell and transfer its Low Voltage Motors and geared motors businesses to Siemens Large Drives India, a subsidiary of Siemens AG. This strategic move, effective from October 1st, 2023, involves a cash consideration of Rs 2,200 crore. The low voltage motors and geared motors business accounted for 7 percent of Siemens’ revenue, contributing Rs 1,061 crore in the fiscal year ending September 2022.
The rationale behind the sale lies in Siemens AG’s plan to establish Innomotics, a separate company focusing on motors and large drives. As a result, Siemens AG intends to carve out its low voltage motors and geared motors business globally. However, this announcement had an adverse impact on Siemens’ stock price, with a 5 percent drop in the last trading hour on May 19 and a subsequent 9 percent decline on May 22 at 10 am.
Various brokerages and analysts have provided their perspectives on the situation. Philip Capital, while acknowledging Siemens’ past practice of selling its Indian business to the parent company, expressed concerns about the valuation, with the deal being valued at 16.7x compared to Siemens’ trailing twelve months P/E of 84.8x. Prabhudas Lilladher anticipates readjustments in revenue and profit after tax due to the divestment, while Nomura downgraded the stock to ‘Reduce’ from ‘Neutral’ based on concerns about the fairness of the valuation.
In addition to this development, Siemens also announced its plans to acquire the Electric Vehicle division of Mass-Tech Controls Private Limited. The acquisition aims to address the growing demand for electric vehicle charging infrastructure in India, expand Siemens’ presence in the local market, and broaden its range of e-mobility solutions. The transaction, expected to be completed by September 2023, involves a cash acquisition cost of Rs 38 crore.
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