>SIEMENS INDIA (JP MORGAN)

Areva's T&D in play - Siemens in the fray - ALERT

• Siemens AG has joined the fray to acquire Areva’s T&D unit, which is reported be in play, over the last month (Source: Bloomberg). Joe Kaesar, CFO of Siemens, said yesterday that it would look at Areva’s PT&D unit if approached by the latter. Schneider and Alstom are the other companies reported to be keen on Areva T&D. See J.P. Morgan European Capital goods analyst, Andreas Willis’ report dated May 13, 2009, analysing the potential acquisition.

• Areva T&D India – large, fast-growing and profitable: 1) Areva T&D reported sales of Rs26.5B and PAT of Rs2.3B in CY08. Over the past 3 years, the company has clocked a tremendous pace of growth, with 45% CAGR in revenues and 84% CAGR in PAT, much faster than its peers. 2) Areva has a transformer capacity in excess of 20,000MVA, making it one of the largest players by installed capacity in India. Areva has been growing its manufacturing capacities and investments in India. 3) Areva clocked an EBITDA margin of 15.4%, making it the most profitable T&D player. 4) Areva has a strong OB at Rs40B and it has been particularly successful amongst private IPPs.

• Implications for Siemens India in the event of a successful acquisition: 1) Larger capacity and market share: While Siemens is a long-established player in India vis-à-vis Areva, we believe an addition of Areva’s portfolio would make it a dominant player far ahead of ABB and Crompton Greaves. It would also provide newer manufacturing plants to Siemens and improve profitability. 2) Potential cost savings and synergies due to common customers and manufacturing facilities. 3) Price paid by Siemens Ltd for the local purchase would be a key point of evaluation. Andreas estimates the potential deal value at €4B for the whole unit. 4) Siemens Ltd has a strong balance sheet and is comfortably placed to fund the acquisition out of cash and additional leverage, in our view. Siemens has never done a domestic equity issuance in India. 5) Concerns will remain whether the local sub will get a fair deal.

To see full report: SIEMENS INDIA