Siemens AG has announced the carving out of its gas and power portfolios and will keep these, along with the wind business, in a separate listed entity. This is in line with emerging trend initiated by global peer ABB.
Once fully effected by September 2020, Siemens AG will have listed entities with clear focus on cash accretive growth and ambitious profitability targets. We view this sharpened growth focus as a strategic long-term positive for Siemens India’s stakeholders as the conventional (energy) portfolio contributed 55%/60% to its September 2018 revenue/EBIT.
However, whether these carved out entities follow the slump sale or separate listing route needs to be monitored. Retain Siemens as ‘Buy’ and our top industrial pick, apart from L&T versus MNCs like Cummins India, ABB, among others. We perceive significant growth opportunities for Siemens India, which in our view is well aligned with the changing industrial capex landscape. This new development will help it remain more focused on high growth areas like digital factories and building technologies, apart from mobility. We maintain ‘Buy/SO’ with TP of `1,450. At CMP, the stock is trading at 39/35x FY19/20E EPS.
Siemens India (SIEM) is a 55% subsidiary of Siemens AG, Germany, which has presence in more than 190 countries. SIEM offers diverse products and services solutions in power generation, transmission and distribution, automation and drives, industrial solution and healthcare. It has nation-wide sales and service network, 17 manufacturing plants, and 500 strong networks of channel partners.
SIEM is one of the most diversified industrial product/ solutions companies in India with exposure to a wide range of industries including power, steel, cement, hydrocarbons, factories & building technologies, automation/ digitalization, etc. Over the past three-four years, the company has simplified its business structure, apart from reducing operating margin volatility, which we believe is a significant departure from the past.