Siemens’ IT unit SISL sold at low valuation

Siemens Information Systems Ltd (SISL) seems to have been sold at a relatively cheap valuation, by Siemens, to a privately owned company of Siemens AG. Siemens said that SISL, which had revenues of Rs 994 crore and PBT of Rs 73 crore for the year ended September 2008, has been valued at Rs 449 crore.

That translates to a valuation of less than 0.5 times sales, while Citi Technology Services (Citos) was sold to Wipro at a price to sales ratio of 1.6 times and TCS had paid 1.8 times sales to acquire the BPO arm of Citi. While there may be differences in these deals, in terms of the segments they catered to, specific skill sets and the fact that Siemens has sold to a group company, the fact remains that Siemens Ltd’s shareholders have not got a fair deal.

Just a year ago, SISL had earned revenues of Rs 1023 crore and a PBT of Rs 160 crore, which means it revenues declined in 2008 but its profit more than halved. The reason according to Siemens is a global realignment. Stripped of jargon, SISL which operated as a separate profit centre, billing group companies for revenues, was converted to a captive service provider, a cost centre. It is not a surprise that shareholders of Siemens are upset.

Many of them had in fact been expecting that SISL would be listed as a separate company. That may have been wishful thinking; few MNCs are genuinely interested in having listed companies in India. But no one would have expected Siemens to sell its subsidiary at such terms. Even Citi’s two ventures were captive service providers. One argument could be that TCS and Wipro will bill at higher rates and also source outside business, so they would be willing to pay a higher price.

Even if one adjusts for that, Siemens should have at least got a price to sales of 1. No wonder that the Siemens’ share price has fallen by 25% from a week ago, though it is up by 6% at the time of posting. It appears that investors were expecting an even lower valuation. It is up to institutional shareholders now to review the situation and take necessary steps, in an environment in which corporate governance and minority shareholder interests are not just buzz words.

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