Siemens has hived off its healthcare division to the parent (SIE GR, buy, 89 euros) for R3,050 crore, in line with global strategy of managing this division separately. The board will consider distributing 50% of this as dividend (4% div. yield assuming negligible capital gains tax). We have reduced our EPS by 7-8% for FY16E-17E given the higher dividend payout and division sale.
Maintain ‘buy’ with a revised target price R1,275 vs R1,380 earlier.
Siemens India’s healthcare segment has been between 6-20% of revenues and 1-11% of EBIT between FY03-FY15. Its margins have always been lower than the overall company’s, reflecting the high import content from the parent. Siemens had a 32% market share in the R240 billion medical devices market in India.
Globally, Siemens AG has restructured the company into 9 verticals with plans of running healthcare as a separate entity. Substantial R&D investment requirements and stronger management focus to scale up substantially are key reasons discussed for the same. Siemens has hived off its medical division into a separate subsidiary in Pakistan also. Siemens India will have 889 employees, 8.7% of its strength, moving with the healthcare sale, and negligible asset transfer.
Deloitte Touche Tohmatsu India valued it at R29-32 billion and KPMG India at R29-32 billion. These valuations are based on DCF (WACC between 10.86-11.36%) and parent’s EV/EBIT multiple. 2.3x – 5.1x trailing EV/sales has been the range of recent deals in the medical equipment industry compared to 2.1x for Siemens India.