The Hindu Business Line : Divestment in arms weakens Siemens

Kolkata, Jan. 13 Siemens India is being hammered – before the book closure period, which begins January 16, and the AGM on January 30 – for declaring dividend at 150 per cent, said analysts.

Announcements of sale of two subsidiaries to its parent Siemens AG at book value or depressed value have compromised the interest of the minority shareholders, they added.

According Mr Arun Kejriwal, the company has not furnished details regarding valuation and price of the subsidiaries sold. Stock has been battered particularly in the last one week when it lost over 32 per cent. The Rs 2 face valued counter shed more than 11 per cent in Tuesday trade to close at Rs 211.10 on the BSE. However, compared to the December 12 price, it has lost around 12 per cent.

“Market is seeing corporate governance issue in the announcement of sale of Siemens Information Systems Ltd (SISL), which showed decline in profitability. This announcement was made on January 9, when the Siemens India board approved the divestment of its 100 per cent stake comprising of 6,815,000 shares of Rs 10 each in its subsidiary Siemens Information Systems Ltd, to Siemens Corporate Finance Pvt Ltd, a wholly-owned subsidiary of Siemens AG.”

According to an investment strategist, the company might face resistance from minority shareholders at the AGM. “Transferring of profit-making asset to the promoters at book value is becoming a tradition for the company. The sale at book value cannot be justified because margins had come down at a time when every business is facing the same problem,” he said.

Siemens India had sold off another subsidiary, Siemens Public Communication Networks Ltd, to Siemens AG at book value during the financial year ending September 30, 2008. A number of brokerages have given negative recommendations on the stock after the announcement.

Kotak Securities, which has come out with a reduce call this week, felt that divestiture of stake in SISL as expected post de-rating the profitability of SISL in terms of margins during the past year. “We have accounted for Rs 1.75 billion as net sale proceeds, lower than our current estimated value of Rs 3.2 billion for SISL business,” it added.

Mr Ajit Day of Dayco Securities, however, felt a little odd at the mentions of corporate governance issue as the earlier sale had been done with approvals. “Siemens has reported weak results for which market has revalued it. But in view of long-term prospect, particularly in a year when the infrastructure spends would go up, outlook for Siemens appears good.”

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