Shares of Siemens Ltd. fell over 3 percent after its parent Siemens AG approved the spin off of its gas and power business into a separate entity.
More than 45 percent of Siemens India revenue will be impacted by this restructuring, Jonas Bhutta, analyst at Philip Capital Industrials, said. The energy management segment of the capital goods maker accounted for 52 percent of its revenue and 56 percent of its earnings before interest and taxes in financial year 2017-18.
While there is no clarity from the parent on how its India business would be affected, Siemens Ltd., in an emailed response to BloombergQuint, said the management will review the impact of the rejig and thereafter evaluate the future course of action in alignment with the Board of Directors. “Until that point of time, we will continue to operate with a clear focus on delivering sustainable and profitable growth.”
The German conglomerate's gas and power business has been among the weakest, reporting lower orders and profitability as utilities buy fewer large turbines amid a global shift to renewable energy. The move to carve out and list this division comes weeks after Bloomberg reported about a possible deal with an Asian partner.
Siemens' Gas and Power will house the company's oil and gas, conventional power generation, power transmission and related services businesses. This business will be listed in September 2020.
Bhutta highlighted two ways in which the restructuring at the turbine maker's Indian arm could be done. The first would involve an identical listing arrangement for gas and power business in India which will be a cash and tax efficient option for the parent entity. The second way is a slump sale of the carved out segments to the parent like it did earlier with the healthcare and metal technology segments. The second way, according to him, would incur cash leakages on account of taxes.
Currently, eight out of the 20 analysts tracking Siemens India have a ‘Buy' recommendation while seven recommend ‘Hold' and five have a ‘Sell' rating.
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