4 March 2016
Update
| Sector:
Capital Goods
Siemens
Neutral
BSE SENSEX
24,646
S&P CNX
7,485
CMP: INR1,044
TP: INR970 (-7%)
Sale of Healthcare business margin accretive
Stock Info
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
M.Cap. (INR b)
M.Cap. (USD b)
Avg Val ( INR m)
Free float (%)
SIEM IN
356.1
1,552/969
1/-9/-8
371.9
5.5
446
25.0
Financials Snapshot (INR b)
Y/E Sep
2016E 2017E 2018E
Net Sales
109.8 110.1 124.4
EBITDA
12.1
13.7
15.7
Adj PAT
7.6
9.8
11.5
Adj EPS (INR)
21.4
27.5
32.4
EPS Gr (%)
26.1
28.7
17.6
BV/Sh. (INR)
184.8 202.3 222.9
RoE (%)
11.6
13.6
14.5
RoCE (%)
54.8
14.3
15.3
P/E (x)
48.8
38.0
32.3
P/BV (x)
5.7
5.2
4.7
Shareholding pattern (%)
As On
Promoter
DII
FII
Others
Dec-15 Sep-15 Dec-14
75.0
9.0
4.9
11.1
75.0
9.2
4.8
11.0
75.0
9.2
4.5
11.3
FII Includes depository receipts
Stock Performance (1-year)
Siemens
Sensex - Rebased
1,600
1,400
1,200
1,000
800
Siemens India to sells its Healthcare division to Siemens Healthcare
Limited, a subsidiary of Siemens AG.
The Board has approved a slump
sale of the Healthcare division for INR30.5b and to also consider
distribution of 50% of the sale consideration as a special dividend on
completion of the transaction, likely 1
st
July, 2016. Post capital gains tax,
receipts estimated at INR24.4b; half would be paid as special dividend and
balance would be retained by the company for reinvestment in the
remaining business. We note that the healthcare division accounted for
14% of the sales and 9% of the EBIT in FY15. It is amongst the top 3 players
in the Indian medical devices market; however, 87% of the products are
imported from the parent/subsidiaries so it enjoys only marketing
margins.
Rationale for separation of the Healthcare segment.
a) Globally,
Healthcare to operate as a separate company under Siemens AG with an
independent management to tackle the emerging business environment
where diagnostics and therapy are converging and adapt to the changing
customer requirements, b) Limited synergies between Healthcare and
Siemens Ltd’s other business segments which are primarily focused on the
Industrial and infrastructure segments, c) The transaction enables Siemens
Ltd to increase focus and further grow its business in Power generation,
T&D, Rail, Industrial automation and Smart cities, d) Indian healthcare
market is moving towards Tier2/3 cities where Siemens dependence on
imported content makes it less competitive, e) Government’s preference
for locally manufactured products(customs duty raised to 19% from 12%)
and customer preference for value products implies significant R&D and
investment in manufacturing facilities which have uncertainty on returns.
Valuation of the deal appears reasonable.
Our estimates for the
Healthcare business imply 65x/33x/30x PE multiple for FY15/FY16/FY17
for the healthcare segment. We believe this reasonable given the fact that
this is a pure trading business where 87% of the products were being
imported from the parent. Siemens Ltd. was completely dependent on the
parent for the technology/products and would have needed to
significantly scale up investments in India to remain competitive.
Earnings and target price:
We are cutting our estimates by 3% and 5% for
FY16/FY17 as we account for the sale of the healthcare business which is
partly offset by higher other income on the proceeds from the sale (50% of
total) which are being retained in the business. Our target price is cut to
INR970 (35x FY17e EPS) of INR27.5. We retain our
Neutral
rating given
expensive valuations.
Ankur Sharma
(Ankur.VSharma@MotilalOswal.com); +91 22 3982 5449
Amit Shah
(Amit.Shah@MotilalOswal.com); +91 22 3029 5126
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

Siemens
Siemens India to sell its Healthcare division to Siemens Healthcare
Private Limited, a subsidiary of Siemens AG
Background of the deal
Siemens Ltd. has approved the sale and transfer of its Healthcare undertaking,
as a going concern on a slump sale basis, for a sale consideration of INR30.5b to
Siemens Healthcare Pvt. Ltd, (subsidiary of Siemens AG), subject to requisite
regulatory, statutory and shareholder approvals. The consideration for the
proposed transaction recommended by the Audit committee is based on the
valuation done by two independent valuers – Deloitte Touche Tohmatsu India
and KPMG India.
The Board of Directors has also decided to consider the distribution of 50% of
the sale consideration as reduced by applicable capital gains tax and dividend
distribution tax, as a special dividend, post completion of the proposed
transaction. This implies a capital gains tax of INR6.1b and post-tax receipts of
INR24.4b. Of this half would be distributed to the shareholders as special
dividend and balance would be retained by the company.
The transaction is likely to close by 1
st
July, 2016. The transaction needs an
ordinary resolution to be passed for approving the same.
This transaction follows Siemens AG’s global strategy of managing its Healthcare
business under a separately-managed company, giving it greater
entrepreneurial freedom and flexibility to meet the industry challenges.
Over 87% of Siemens Ltd healthcare revenues are currently derived from
products imported from Siemens AG and its subsidiaries. Significant
management focus, including investments will be needed in finding appropriate
products and solutions to meet the growing demands of the Indian market.
This transaction enables Siemens Ltd to increase its focus and have higher
capital allocation in Power generation, Transmission and Distribution, Mobility,
Industrial automation and Smart cities. As per management, it would look to
invest and increase localized content in these area.
This transaction will also enables Siemens AG to strengthen its focus on the
Healthcare segment in India, by aligning it with its global strategy and
management framework.
Exhibit 2: Healthcare segment employees
No of Employees
889
876
863
Exhibit 1: Healthcare segment business details
Healthcare Revenue (InR m)
EBIT (INR m)
import content (%)
89%
11,297
14,442
88%
87%
1,966
FY13
1,314
FY14
1,211
FY15
Source: Company, MOSL
14,248
FY13
FY14
FY15
Source: Company, MOSL
4 March 2016
2

Siemens
Key rationale for separation of healthcare business
Limited synergy between Healthcare and Siemens Ltd’s other business segments
which are primarily focused on the industrial and infrastructure segments. More
importantly, this business is largely a pure trading business where ~87% of the
products sold are imported from the parent/subsidiaries.
Increasing Government spending and its preference for locally manufactured
products will require Siemens Ltd to undertake significant long term
investments as it currently imports 87% of the healthcare products from
Siemens AG and its subsidiaries. To promote domestic manufacturing, the
government has recently increased the customs duty on medical equipment
from 12% to 19%. It is also highly dependent on Siemens AG and its subsidiaries
for products and technical know-how
Growth in Indian domestic market is being driven by Tier II/III cities, where
preference is for value products whereas Siemens Ltd product portfolio consists
of the high end technology products. There is a
Enhanced focus, capital allocation and resources to further grow in power
generation, transmission & distribution, mobility, industrial automation and
smart cities.
This transaction follows Siemens AG’s global strategy of managing its Healthcare
business under a separately-managed company, giving it greater
entrepreneurial freedom and flexibility to meet the challenges facing this
industry.
Allows increased flexibility, greater entrepreneurial freedom and faster decision
making to grow India Healthcare segment independently
Exhibit 4: Medical
details
75
44%
37%
device
market
Exhibit 3: India Health market details
240
Exhibit 5: Medical deice market served
by Siemens Ltd healthcare
5440
India healthcare market (INR b)
Medical device market (INR b)
Source: Company, MOSL
240
Medical devices market (INR b)
market served by Siemens Ltd (INR b)
Source: Company, MOSL
IVD Reagents
Diagnostic Imaging
19%
IVD equipments
Source: Company, MOSL
Valuation for the deal – 65x/33x/30x FY15/FY16/FY17e EPS
Valuation conducted by two Independent valuers – Deloitte Touche Tohmatsu
India LLP and KPMG India Private Limited, with Citigroup global markets India
private Limited as transaction advisor. Valuation was based on following two
technologies. a) DCF and b) Market pricing method considering the Enterprise
Value/EBIT multiple.
Deloitte Touche Tohmatsu India LLP, in its valuation report, has recommended a
valuation in the range of INR 29.1b to INR 32.2b whereas KPMG India Private
Limited, in its valuation report, has recommended a valuation in the range of
INR 29.4b to INR 31.9b. The Board of Directors has chosen INR30.5b as the
valuation of the Healthcare segment.
3
4 March 2016

Siemens
We have built in revenue CAGR of 15% over FY15-17e and EBIT margins to
improve to 8% during this time. At the price of INR30.5b this implies a
65x/33x/30x PE on FY15/FY16/ FY17 earnings which we believe is reasonable
given the fact that this is a pure trading business where 87% of the products
were being imported from the parent. On a Price/Sales and Price/EBIT basis, the
valuation of the Healthcare business is 2.1x/1.9x/1.6x and 45x/23x/20x its
FY15/FY16E/FY17E.
Exhibit 6: Healthcare segment financials
Description
Sales
YoY growth (%)
EBIT
Margin (%)
PAT
FY15
14,248
-1.8
673
5%
471
FY16E
16,385
15%
1,311
8%
918
FY17E
18,843
15%
1,507
8%
1,055
Source: Company, MOSL
Exhibit 7: Implied multiples for the Healthcare segment
Description
Price/Sales
PE
EV/EBIT
FY15
2.1
65
45
FY16E
1.9
33
23
FY17E
1.6
30
20
Source: Company, MOSL
Exhibit 8: Valuation parameters of Siemens Ltd
FY15
P/Sales
P/E
EV/EBIDTA
3.5
61.6
35.9
FY16E
3.3
44.9
FY17E
2.9
34.1
35.9
35.9
Source: MOSL, Company
Earnings and target price
We estimate that the post-tax receipts for the Healthcare division sale at
INR24.4b. Of this half would be paid out as special dividend and the balance
retained for investment in the existing business.
We are cutting our estimates by 3% and 5% for FY16/FY17 as we account for the
sale of the healthcare business which is partly offset by higher other income on
the proceeds from the sale which are being retained in the business. We do not
build in any significant increase in the capex in FY17
Our target price is cut to INR963 (35x FY17e EPS) of INR27.5. We retain our
Neutral rating given expensive valuations.
New Estimates
2015
2016
2017
105,124 109,752 110,131
9,761
12,145
13,652
9.3%
11.1%
12.4%
6,034
7,609
9,791
17.0
21.4
27.5
Old Estimates
Chg. in Estimates
2016
2017
2016
2017
113,848
128,974
-4%
-15%
12,480
15,158
-3%
-10%
11.2%
12.0%
-0.1%
0.4%
7,826
10,285
-3%
-5%
22.0
28.9
-3%
-5%
Source: Company, MOSL
Exhibit 9: Exhibit 9: Change in earnings (INR m)
Description
Sales
EBITDA
Margin (%)
PAT
EPS (INR)
4 March 2016
4

Siemens
Financials and Valuations
Income Statement (Standalone)
Y/E September
Total Revenues
Change (%)
Raw Materials
Staff Cost
SGA Expenses
EBITDA
Change (%)
% of Total Rev.
Depreciation
Interest
Other Income
EO Items (net)
PBT
Tax
Rate (%)
PAT
Adjusted PAT
Change (%)
2012
129,199
7.4
98,483
11,959
10,022
8,736
-41.4
6.8
2,010
270
575
-178
5,209
1,777
34.1
3,432
5,254
-47.6
2013
113,526
-12.1
85,368
13,524
7,729
6,905
-21.0
6.1
2,502
189
345
2,698
2,185
246
11.3
1,939
4,313
-17.9
2014
106,626
-6.1
75,543
14,118
9,676
7,289
5.6
6.8
2,291
82
1,039
1,347
8,436
1,526
18.1
6,032
4,428
2.7
2015
105,124
-1.4
70,814
13,942
10,607
9,761
34
9.3
2,156
73
1,604
0
9,136
3,102
34.0
6,034
6,034
36.3
2016E
109,752
4.4
72,465
14,068
11,074
12,145
24
11.1
2,271
93
1,740
24,400
35,921
3,911
10.9
32,009
7,609
26.1
2017E
110,131
0.3
69,856
15,510
11,112
13,652
12
12.4
2,441
113
2,889
0
13,987
4,196
30.0
9,791
9,791
28.7
(INR Million)
2018E
124,414
13.0
79,087
17,100
12,554
15,674
15
12.6
2,624
133
3,403
0
16,320
4,936
30.2
11,384
11,517
17.6
Balance Sheet (Standalone)
Y/E September
Share Capital
Reserves
Net Worth
Loans
Minority Interest
Net Deferred Tax Liab
Capital Employed
Gross Fixed Assets
Less: Depreciation
Net Fixed Assets
Capital WIP
Investments
Curr. Assets
Inventory
Debtors
Cash & Bank Balance
Loans & Advances
Other Current assets
Current Liab. & Prov.
Creditors
Other Liabilities
Provisions
Net Current Assets
Application of Funds
E: MOSL Estimates
2012
681
38,922
39,626
0
-3,176
36,450
24,356
10,234
14,122
850
410
87,889
9,431
39,124
9,768
11,031
18,535
66,821
32,437
19,687
14,697
21,068
36,450
0
2013
712
39,591
40,303
0
-4,297
36,006
26,852
13,063
13,789
889
432
79,033
9,334
37,668
6,038
11,073
14,920
58,137
31,044
13,095
13,998
20,896
36,006
0
2014
712
43,044
43,756
0
-3,738
40,018
28,114
14,558
13,556
409
82
84,803
10,472
36,437
11,210
14,134
12,550
58,832
32,323
14,607
11,903
25,970
40,017
-1
2015
712
50,554
51,266
0
-3,175
48,092
28,802
15,269
13,533
321
1,764
86,485
9,509
30,183
20,959
14,958
10,875
54,011
24,863
12,687
16,460
32,474
48,092
0
2016E
712
65,063
65,775
0
-3,175
62,601
30,957
17,540
13,416
321
1,755
102,311
9,721
30,854
35,329
15,290
11,117
55,211
25,416
12,969
16,826
47,100
62,592
-9
2017E
712
71,308
72,021
0
-3,175
68,846
33,272
19,982
13,290
321
1,672
108,924
9,749
30,943
41,749
15,334
11,149
55,371
25,489
13,007
16,875
53,554
68,837
-9
(INR Million)
2018E
712
78,655
79,367
0
-3,175
76,192
35,761
22,606
13,155
321
1,847
124,782
11,254
35,722
47,233
17,702
12,871
63,922
29,426
15,015
19,481
60,860
76,183
-9
4 March 2016
5

Siemens
Financials and Valuations
Ratios
Y/E September
Basic (INR)
EPS
Growth (%)
Cash EPS
Book Value
DPS
Payout (incl. Div. Tax.)
Valuation (x)
P/E (Standalone)
Cash P/E
EV/EBITDA
EV/Sales
Price/Book Value
Dividend Yield (%)
Profitability Ratios (%)
RoE
RoCE
Turnover Ratios
Debtors (Days)
Inventory (Days)
Creditors. (Days)
Asset Turnover (x)
Leverage Ratio
Debt/Equity (x)
2012
14.9
(49.3)
20.6
112.6
6.0
61.5
70.0
50.6
41.0
53.2
9.3
0.6
13.5
9.3
111
27
92
3.5
0.0
2013
12.1
(18.8)
19.1
113.2
5.0
91.8
86.2
54.5
53.0
83.0
9.2
0.5
10.7
5.3
121
30
100
3.2
0.0
2014
12.4
2.7
18.9
122.9
6.0
35.4
83.9
55.3
49.5
72.1
8.5
0.6
10.1
14.5
125
36
111
2.7
0.0
2015
17.0
36.3
23.0
144.0
10.0
30.1
61.6
45.4
35.9
46.1
7.2
1.0
11.8
25.0
105
33
86
2.2
0.0
2016E
21.4
26.1
27.8
184.8
40.8
30.1
48.8
37.6
27.7
34.1
5.7
3.9
11.6
54.8
103
32
85
1.8
0.0
2017E
27.5
28.7
34.4
202.3
8.3
30.1
38.0
30.4
24.2
29.4
5.2
0.8
13.6
14.3
103
32
84
1.6
0.0
2018E
32.4
17.6
39.7
222.9
9.7
30.1
32.3
26.3
20.7
24.9
4.7
0.9
14.5
15.3
105
33
86
1.6
0.0
Cash Flow Statement
Y/E September
PBT before EO Items
Add : Depreciation
Interest
Less: Direct taxes paid
(Inc)/Dec in WC
CF from Operations
EO Income
CF from oper. Incl. EO items
(Inc)/dec in FA
Free Cash Flow
(Pur)/Sale of Investments
CF from Investments
(Inc)/Dec in Net worth
Inc/(Dec) in Debt
Less : Interest Paid
Dividend Paid
CF from Fin. Activity
Inc/Dec of Cash
Add: Beginning Bal.
Closing Balance
E: MOSL Estimates
2012
7,031
2,010
0
1,777
(1,961)
5,303
(2,177)
3,126
(4,086)
-960
(410)
(4,496)
487
0
0
2,455
(1,968)
(3,338)
12,750
9,768
2013
4,559
2,502
0
246
(3,558)
3,257
(3,023)
234
(3,329)
-3,095
1,099
(2,230)
821
0
0
2,084
(1,263)
(3,258)
9,768
6,038
2014
5,955
2,291
0
1,526
97
6,817
4,297
11,113
(1,020)
10,094
350
(669)
(15)
0
0
2,563
(2,578)
7,867
6,038
11,210
2015
9,136
2,156
1
3,102
3,246
11,436
5,798
17,235
(1,481)
15,753
(1,682)
(3,163)
(38)
0
1
4,285
(4,324)
9,748
11,210
20,958
2016E
11,521
2,271
2
3,911
(256)
9,625
24,400
34,025
(2,155)
31,870
0
(2,155)
0
0
2
17,500
(17,502)
14,368
20,959
35,327
2017E
13,987
2,441
3
4,196
(34)
12,199
0
12,199
(2,316)
9,883
83
(2,233)
(0)
0
3
3,546
(3,549)
6,417
35,329
41,746
(INR Million)
2018E
16,453
2,624
4
4,936
(1,823)
12,318
0
12,318
(2,489)
9,829
(175)
(2,664)
0
0
4
4,171
(4,175)
5,480
41,749
47,229
4 March 2016
6

Siemens
NOTES
4 March 2016
7

Disclosures
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Siemens
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