Good day, and welcome to the Schneider Electric Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Amit Bala, Head of Investor Relations. Please go ahead.
Thank you, operator. Hello and welcome. Thank you for taking the time to be with us this morning. We're here to discuss course, the transaction for India that was announced yesterday. The presentation that we are covering today is on the website.
On the Investor Relations page on the financial releases. You probably received this through the email as well. Just to share, this today, we have, so we have Jean Pascalticourt, Chairman and CEO on the call, we have Emmanuel Babaugh, deputy CEO and CFO, and we also have Philippe Dillon, Executive VP and Head of our low voltage and secure power business So, just your reference to the disclaimer on page 2, as always, And with that, I would like to hand it over to Jean Pascal.
Yeah. Well, hello to all of you on the online and thank you for bringing us to share, on this acquisition or of the formation of a new company with Lawson Touvo Electric Call operators. Well, first I'd like to start by speaking about India. On the importance it has for Schneider, and I'm in Slide 4, as we speak. So, well, our first steps in India are dating back to 1963, and it was actually a mergering at the time working with Tata in a joint venture.
That's a long time ago on really we started really our development in India, at the turn of the century. And I was, yesterday going through some of my archive. I think the turn of the of the total of Schneider 99 was around $60,000,000 or close to that. And we had a very, very small presence. So we've really worked on it a lot in the past 18 years.
I would be able to say, I have worked on it a lot myself. On today, it's our 4th largest market in 2017 with 1,000,000,000 of revenues in India, 20,000 people On a very complete presence of Schneider, with 24 factories, we're going to speak about that later, but we invested early on in India for manufacturing, much earlier than many of other players. We have roughly 30 distribution centers 29 to be precise, 50 sales officers, 2600 partners, still much less than, in this sector. On Schneider as 1500 R and D staff in R and D centers on 1600 shared services on back office staff. So very, very consistent on very persistent development in India to kind of balance our presence in Asia complement what we had in China, what we had historically built in Southeast Asia.
Our presence in India has multiple shapes, which are working together inside Schneider India. The core of the core is Low Voltage on Industrial Automation, on it representing 40% of our revenues has been growing double digits in the past 2 years, and we can explain that later when we speak about the plans of India and how much consistent we are at Schneider with those plants, with those directions. Then Luminess, which is specialized in power inverters, to stabilize power in Indian Homes. That has been the tremendous success in the beginning of the joint venture, we've doubled the turnover and improved the profitability. So we are present probably today certainly in a twice more homes than we were at the beginning of this, obviously, joint venture with Luminess
on buildings.
Schneider And Infrastructure Limited, which is our medium voltage listed company, which is very much positioned on new utilities in this case. But also supplying Medium Voltage to other applications. Our Secure Power business, our Process Automation business, And then 2 back offices that I already mentioned, back office, R And D And Innovation Center on our shared services. So a very complete presence that make of India 1 of the largest countries of Schneider. Slide 5, while some examples that show how much we participate to the priorities of the Indian government on much we participate also through the development of India, the first one of which we are very proud.
Everything we do in access to energy providing solar energy has been to a large extent developed from India, in many cases, R And D And Manufacturing included. We are part of many critical infrastructures in India. We are participating actively at the Digital India, a big plan of Pony Mori. 2 examples the first smart city of the 100 smart cities in United Highpool is using Schneider Technology Integration Technology, and we, of course, do a lot of data centers in India as we do in the rest of the world. India.
There again, we participate to solar. To solar development in India. We also work on mutual projects in India. And finally, we really enabled social inclusion. We have trained and we are training a lot of youngsters under privileged youngsters to the trade of being an accretion or working automation in India.
Slide 6, and I won't dwell on it, but you've got more elements or examples of iconic projects to which we have beyond the one I already mentioned. To which we have participated in the recent years. All that will go on on Slide 7. The reason why, we have collectively put a lot of emphasis in India during the past 18 years, I would say, is the very early realization that this country would develop with all the complexity of India that all of us know. But today, we see that the GDP on it's not us speaking, of course, but these are more institutions.
The GDP should double by 2025. And if you look at the next few years, on the impacts of the reform or premium release. That should be an addition of USD 800,000,000,000. Of course, there is a huge investment in infrastructure in the large sense of it, part of it being urbanization, of course, That would also translate into the multiplication by 2 of the middle class, till 2025. One thing that, of course, is very promising for the country is that it's the largest young population in the world.
On what we see today from the government is a strong, focus on manufacturing, on innovation, and in parallel to the development of large companies, the development of startups with 5000 startups to the developing in India. So name a few of the action plans that Schneider is really supporting through the core of our business. Of course, make in India, which we address in 2 manners, what we do in Industrial Automation, what we supply as technology in industrial automation for our customers, but also because we are a very large industrial a company in India. I'm going to come back to that. We export clothes, well, around 50% of what we produce in, in India.
2nd point is everything, which is related to power for all the national Solar Mission and let me cross sell them together. A big priority of Promenity, which we serve in multiple fashion on the distribution network in doing micro grids powered by soda. Then everything, which is around clean India, which drives to energy efficiency on infrastructures, like water waste water infrastructures that we participate in cleaning. On all the creation of new infrastructure and especially smart cities that I already touched before. And with these projects, that we are that we participate in.
So all of this makes strong drivers. And I'm in Slide 8 for our 2 business. First one, which is energy management, medium voltage, low voltage, central power based on strong urbanization, electricity consumption, which is growing housing, which is driving there again, more electricity consumption. On the labor reform that will lead to the improvement of the infrastructure sector and the fast development of India as created a lot of gaps that are needed to fill, that one need to fill in the next coming years. Plus transportation, which sees quite a lot of projects following.
We see, in energy management, the CAGR, the market, high single digit to double digit as we go forward. Sensing, we see now growing drivers for industry automation. Well, of course, you have key government programs in the field of smart cities. We spoke about water supply, smart water, urban transportation biggest one being make in India, which pushes industrialists to, to automate. More FDI also coming in India.
India is becoming a bigger economy and more attractive from the business environment point of view. And while we see also investment in digitization into industries in India, so that they keep at the or they come to the highest level of quality, which is already the case for a number of the industries developing down there. We see a potential of double digit CAGR. So if we look at all this one place and I already mentioned it, where we see a lot of potential is the development of making India. And again, with supply technology, but we also We also produce and have this idea to make of India already as we speak an important manufacturing on the innovation hub for Schneider.
So as we today, 50% of our production is already for export on the pure Schneider side, So what we want here is, of course, to reinforce this base on the side of innovation on the side of of manufacturing, and I'll come back on that at the end of this presentation, but India will be changing league and rank as we are as we when we conclude the operation that we have described in here. Before I leave the floor to Philip will explain you about, Larsen Touvo and what we want to do together. Let me tell you, it's been, the conclusion of many, many years of work. I think the first context between Schneider and Justin Touvo updating back to 1999 Greg's Ferrari at the time, Mr. Nyke, Chairman, Knight was disappointed at that time.
Personally, I think I had my first meeting with this company in 2002 when I was appointed the end of the international division. And then we are we really add a continuous context to really evaluate the interest of this combination for at least the past 10 years. So it's not something that was done in a hurry. That's something that was that was mentioned solidly over time. With that introduction, Felix?
Thank you, Jean Pascal. So Let's switch gear and dive into what this business LNC electrical Automation is. So we are here on Slide 11, where you see a first snapshot of what the company is. So First of all, it's a company that has a majority of his business in India, around 20%. Some business expansion in Southeast Asia, mostly Malaysia and the Middle East, a very strong and we'll give some further data, but a very strong presence in India.
And a very targeted offer to India to start with in a business that is the business of Schneider, which is a business of Energy Management And Industrial Automation, 5000 people, 5 manufacturing location that are extremely cost team. So Slide 12, if we dive one level down into what this company is made of, it's made mostly of 4 business divisions, the biggest one being electrical products, mostly circuit breakers, contractors, which is mostly a product business, complemented by 2 arms of integration, one around equipment, low and medium duty equipment, one around automation and one business that's more standalone around, around metering. Metering protection system. So you have here a snapshot of, let's say, the size of the different businesses. And the customer portfolio that leverage 70 years of relationship, a very strong local relationship, whether on the product side or on the segment side.
Within your name here, that are big names, but that are, and that's really, I mean, alongside with all the contacts we've been having, long, long relationship that have been built over time. So in a nutshell, we have here a company with a great portfolio that's very close to the core for cost on Page 13. That has a very strong access in two dimension one on really the coverage of the countries with more product approach and which what LNC call stock is. Also in a segment approach and with integration capability, point number 3, a lot of talent So highly experienced management team, talent in the field of innovation, R And D capabilities, and a very competitive manufacturing footprint that, of course, is a critical for India, but that we want to use outside of India in line with, let's say, our India strategy. So in the end, a great business that we believe can be a great addition to Schneider Electric.
So now I'm going to pass it over
to Emmanuel to explain you and share with you how we are structuring that transaction. So Emmanuel, up to you. Thank
you. Thank you, Phillip. Good morning, everyone. Very pleased to be with you comment is a very important move for us. And indeed, let's move to the structure of the operation, and the value it's going to create I'm moving to the page, 15 year with the headline of the structure, we are acquiring the LNG electrical and automation business, the price is 14,000 crore, which is equivalent to 1.17 5,000,000,000, approximately, and that correspond to a valuation of about 15 time the estimated EBITDA for the current fiscal year, the fiscal year 2019 ending in March.
We are acquiring the business and we are going to combine it with the existing Schneider, low voltage and automation business in India generating, of course, strong value and strong strength. And we're doing that with a great partner. We're doing that with Temasek. I will elaborate on the structure of the deal and what each party is bringing later on. But basically, we're going to set up a JV vehicle, that will combine both the LNG E and A business and the Schneider Low Voltage And Automation Business.
And in this vehicle, we will own a 65% and Temasek will own 35%. This is clearly a transaction through which we keep focusing on the core of Schneider and our biggest priority, getting more asset and growing here in Low Voltage Energy Management and in automation. And clearly, there is a strong strength here in the combination and it's about a great fit and a perfect complementarity between the two businesses that we're going to put together. Schneider, of course, is coming with our strong technology platform, all our digital capacity and the global presence. And L And T E And A is coming with an unparalleled deepen and capillary routes in India with a great domestic reach and fantastic I would say, specific addressing of the Indian market, manufacturing capability that are going to be also great to have, and of course, an R and D, which is specifically targeting the Indian market.
This is going to enable our ambition for India for the world and making India clearly. And, and Jean Pascal has started to elaborate on that. And because you have such a great complementarity and fit we're going to be able to generate significant synergy and create a very nice value through the transaction. Moving to the next page. And of course, I want to say a few words about our partner in this combination, Temasek.
It's really great to have Temasek with us. We are absolutely delighted to partner with them. Several reason, of course, to have them in this great move. First of all, they are, a very savvy and successful investors and they have an unparalleled track record for investing in strong growth businesses and having a great return. That's true for Asia Engineering in India in particular.
And of course, we're going to benefit from their knowledge, their skills, in managing efficiently fast growing businesses. 2nd, there are also very well connected investors among decision makers, I would say, across the region, they are highly invested in core segments for this new combined business. And therefore, of course, they're going to open a possibility for accelerating further through this contact the business and accelerate further the growth of this newly created company. 3rd reason, having Tim Isaac here as a partner illustrate I would say, once again, the very disciplined capital deployment policy that we have, life for Aziva, in this transaction, we are taking a majority stake in a stronger company by bringing existing assets at Schneider, but with the rerating because we bring them at a higher multiple than their current valuation. And through that, we are, at the same time, limiting, of course, the capital deployment and limiting the risk on deploying capital, we are maximizing the positive impact for the group with the presence of this very high quality partner.
Last element, which is going to be important. It's really a merger between two businesses the people from the 2 company will really have the feeling that it's a world of opportunity that is opening up for them and to have a Temasek as a partner here just so that it's not an acquisition. It's really a combination of merger and that I think is going to create the right momentum and the right environment for motivating and having the team at its very best. Philippe, I hand over back to you to keep commenting the strengths of this combination.
Sure. So let's go to page 17 where you got the snapshot of something that Emmanuel already alluded to, which is complementarity. So indeed, we believe that we have a very strong, I wouldn't say perfect, but really value creative complementality on a couple of fronts on the product portfolio side. Number 1, number 2, on really the geographic presence and illustrate that. On the R and D capability, number 3, number 4, segment coverage and number 5, really expertise.
So let's go on page 18 where we will illustrate some of those key complementarity points. So one, on the offering side, Let's take 2 examples. 1 on the circuit breaker, we really, let's say, on the Schneider side comes with, let's say, 1, a lot of scale, a lot of digital capabilities where we see with L And T, a very cost effective solution that we are, of course, very interested with. So that's what you see on the left side, upper parts, lower part contractors, which Forschneider is a big and profitable business and for LMT is a central business. Here again, we come with a global offers LNC comes with local offers that are actually very well positioned.
Here, we believe that we could leverage the teams working together to actually reinforce the global offering we have to come up at Schneider globally with even more innovation. On the segment side, which is what you got on the right side of page 18, also a lot of complementarity in our customer coverage. You see on the Schneider side, a lot of segments where we are coming with a lot of global relationship with the data center, food and beverage and so on, where actually the global names in short We're actually LNC has been leveraging again 70 years of deep relationships, which are coming with segments that I would say more locals. And I think we were showing right before, names that are very local names on which as Schneider, we were probably having not as good as a reach as what N and T has been able to develop. Page 19, an oral illustration of the coverage, which is really the product coverage.
I think you all realize our important distribution in our business. Here, 70 years of history and relationship of the LMT teams, I would say stream proximity. They consider nearly what they call the stockist or part of their family. And here, LNC is coming with a very good reach in Tier 3 Tier 4 Cities where actually Schneider is not that strong. And in Tier 1 and Tier 2, what's striking is that we are coming with a very complimentary reach to distribution, meaning the stockist or the distributors of L And T are usually not distributors of Schneider and reverse, which really complement the reach and which in product sales, which is an important part of that business comes as a very critical success factor.
Page 20, yes, page 20, talking about innovation capabilities and let's say, back office capability, R And D capability, we really see with with the blend of those teams, not only an outstanding India for India capabilities and actually manufacturing capability, but really India for global, whether for new economy or for mature. So we see a very good again, it's complementarity between our capabilities, both R and D and plans. And to finish phase 21. So if we wrap it up, our project is to bring these teams together, leveraging those complementarity. Leveraging Temasek, which has been extremely helping us a lot in how to form that partnership.
Really with 3 things in mind in terms of characteristic of that team and that company, a very strong market coverage. In terms of segments, in terms of reach through partners, a very broad portfolio. Number 2, and number 3, back office capabilities, whether innovation or manufacturing, that would really help us in India, but also help us for the globe. So that's really our project. And now I will leave it to Emmanuel to talk about more the detail of the transaction and structure.
Manuel?
Yes, thank you, Philippe. Thank you. Yes, absolutely. I'm on page 23. To introduce a structure of this combination and that's where you see that we are creating this JV, which will the combining the L And T Electrical And Automation Business together with Schneider, a low voltage and automation business in, in India.
And you see that Schneider will own 65% of that JV and Temasek will own 35%. And to get to this respective ownership, Schneider is going to contribute its existing business. And we do that at a multiple, broadly comparable, to the one at which we are buying the L And T business. And in addition, we put in equity, 3 425 crore which is approximately 1,000,000. Temasek is contributing in equity cash for 5075 core.
And this is the equivalent of around 1,000,000. All the number here are, of course, on the assumption of the cash free debt free transaction. Then this JV will have date and will raise debt for an amount of 5500 core or approximately 690,000,000 the business will be fully consolidated in Schneider Electric account. I mentioned this, 15 time EBITDA multiple, which is, the evaluation corresponding to the 14,000 crore applied to the expected for the current fiscal year, and that is taking into account the tax asset that is coming with the transaction of about 140 1,000,000. As I said, it's going to be a synergetic transaction and we believe we can contribute, at least 300 crore of synergies, mainly coming from cost synergy, I would say about twoset being cost synergies.
And there will be a 5 year ramp up. I would say probably twothree of the synergy would have been generated in year 3. And if you take into account the full run rate of these synergies, the multiple of the transaction equals to about 11 time the expected EBITDA for the current fiscal year. When we look at the multiple of that transaction, we believe it compares, well or extremely well versus, the valuation for equivalent Indian business being listed today. So you have here 4 competitors, and of course, you can find the reference similar business being listed today in India and the current multiple of valuation, whether on actual or based on consensus.
And that's where we can see that the multiple that we pay for the transaction is, is, is, is very fair multiple. I'm moving to the page 25, just to say that the transaction meet our financial returns criteria is going to be, adjusted EPS accretive in year 1. We're going to match the work of the group, with the ROCE in year 3. And of course, the deal is subject to the customary approval from the local regulator. There is no change in our capital allocation priority.
I think I described very clearly how this operation, the weight is being structured is one more time underlying the very cautious, disciplined rigorous approach on capital deployment. For the rest in terms of capital allocation, there is no change. We keep having about 50% payout ratio with a policy dividend policy. The 1,000,000,000 share buyback continue, and the roadmap for M and A stays the same. We are looking only at ideas where we would be strengthening our core priority I think that following the ASCO deal, following the AVEVA deal, this deal, once again, you know, underlying that we are very consistent on the way we are looking at M And A.
That's it for looking at the detailed structure of the deal and the value creation. And Jose Pascal back to you for the conclusion.
Yeah, as a conclusion and before we take possible questions. Well, first, let me say that, it's been for us as a team for me personally, many, many years of dialogue and discussion, which are taking form, with signing this agreement on building a new capability in India. We've got the we've always had the utmost respect for Larson to go for what they do in our sector, but the way they have developed into new sectors, it's been one of the phenomenal success of the Indian industry. So this is clearly a project for growth. On the growth of India and the growth of the whole region, because from that combined force, We're going to develop our manufacture products that are going to go into the whole regions on more largely into the rest of the world.
It's a core, core, what we are putting together is the global leader and the Indian leader, together. So there is a natural match of our business. And let me also say that with that, India would become our 3rd largest market on par with friends. And as Philippe described it, one of our 4 major hubs for innovation on manufacturing. Therefore, offering more balance for our company on offering more possibilities for the future.
So it's a bit more it's certainly much more than a project for India. It's a project that that offers what we are building in India perspectives on a global scale. With that, I think we can transition to questions. So Amit, if you want to take the lead?
Yes, sure. So thank you for that. I think we have about 20 odd minutes. Let's see, there are some questions on the line. So we'll start with the first one operator.
We will now take our first question from Gal De Bray from Deutsche Bank. Please go ahead.
Thanks very much and good morning everybody. I have a couple of questions actually. The first one is I've noticed that, the last known 2 broad business has not really grown that much over the past 6 or 7 years. So could you perhaps elaborate on the reasons behind the lack of growth? And, secondly, Could you talk a bit more about the, the Indian competitive landscape, for both industrial automation and and low voltage?
How fragmented our hours these markets are and, what kind of market share and position will you eventually get in India plus the transaction. Thanks very much.
Okay, Philippe. Sure. So
on the first question, so actually, L and T has been growing. To be fair, I think they've been also working on their profitability. And, and they have increased a lot. They're bottom line and they've been pretty disciplined on that, especially on their project business. Which I guess is a good news for us because we've seen a very disciplined business of integration with very professional people, but they are still a formidable competitor and they've been growing.
I dare to think that we've also been competing and it's been a harsh battle alongside with others. So on your second point on the landscape of India. India is one of the most competitive markets we have in the world for that core business. So we have, of course, 70, we have Schneider we have all the other names that you know, plus Indian local names. So very different by product line, but It's extremely competitive, very aggressive price level, very aggressive commercial practices.
And we believe that that sense of competition will stay before and after that, that combination of business Yeah.
It's also a market where you have to be very, very local, because the standard of India on the conditions of the network of India are very specific. So, one of the difficulties that we face on that we are still facing to a large extent is that very often global offers are not making it to Zillion market for reasons of competitiveness. So that what we are signing together would be a way to accelerate our localization on our capacity to fit a linear market.
Okay, understood. Thanks. Thanks, Gail. Next question, Casey.
We'll now take our next question. From Andreas Relay from JP Morgan. Please go ahead.
Yes. Good morning, everybody. I have a couple of questions as well on more on the details the deal. Maybe first on financing, obviously, you can have quite a bit of leverage in this entity. Is this money raised locally or because that makes a big difference in terms of the cost of funding and our assumptions for also what you said in terms of EPS accretion.
Second question, is there an exit mechanism for Temasek already agreed, or is this just assumed to stay a partnership for the long term? And thirdly, what's the profitability of your business that you're injecting to the partnership?
Emmanuel? Yes,
happy to take that one, Andreas. On the debt, of course, through the lifetime of the JV, the way the financing will happen can really evolve I would say it's likely that it's going to start by a loan coming from Schneider to the JV. So that will be, to a large extent, internal financing to start with. But of course, it doesn't mean that it's going to stay like that for Azure. On the exit for Temasek, we mean, plenty of options are open and there is nothing, which I would say will be casting stone.
And therefore, we'll see after a period of time, I mean, same effect is a long term investors. So they are not around for just a couple of years. It's going to be longer term than that. And then in terms of exit, many options are on the table. One of them could be an IPO of the business.
But there are also other options. So at that stage, nothing is determined to be very clear. And on the profitability of the business, I think that we are sharing what we want to share with you on the fact that the transaction is happening at a multiple, which is broadly similar to the one at which we are buying the LNG E and a business. And we're not going to give more detail.
Is the multiple similar on EV sales or EV EBIT EBIT EBITDA?
On the, the reference is here on the EVA digital.
All right. Next question please.
We will now take our next question from James Stiller from Barclays. Please go ahead.
Hi, this is Sanuj Agrawal on behalf of James Detlers. The question is actually, you mentioned that MSA would be bringing corporate governance, strong corporate governance with them. We just want to understand, I mean, if I heard you correctly, you also mentioned about cross segment investment. If you can just elaborate on that, please. And also on the competitive landscape, just a follow-up actually, So if you can just help us as to which are within the low voltage, which end markets are more high margin markets where you see competition there?
Yeah. Well, I'm going to try to elaborate on the on the Nasdaq on the governance. We are putting together here 2 teams, who have both of them a lot of pride laughing too on Schneider, not operating necessarily on the same market as, Filipe was explaining before, a lot of complementarity between the two presidents. And the fact we structure Aviso as a JV with a third party gives a warranty for the people of Loscenturo who comes really with a position of the biggest company. Into the deal, with a third party, which is really making sure that every decision made is impartial on those in the best interest of the company.
So on what we've seen also is that when we do integration like this, the fact to have partner forces us to be even more rigorous. So I see that as a good incentive all the time to make sure that we do things, right, during the process of integration. On the competitive landscape, frankly, let me not let us not comment on the segment by segment. India is a very diverse market. It's very competitive because everybody is there.
It's a market where everything is negotiated as everybody knows. So you have to be extremely low point, very performing on cost, very integrated in cost. We saw it at Schneider we did the investment of the local presence. We are not really making big steps in the country. So I would say, yes, it's another competitive place, but where, innovation where your network, where the way you approach the market is the recipe to progress.
Thank you.
I really see, can I repeat again? But I see India, one of the markets where we have to be the most local. Because of the size of the market, because of the multiple segmentation of the market. Multiple layers on the market because of the standards, because of many, and because of the demand on efficiency. It's a market where you have to be very efficient.
Just a follow-up on that since you mentioned, since you mentioned about the being local in the Indian market. How do you see the footprint consolidation there? I mean, L and T has manufacturing facilities, I think, on the west part mostly. And, how does that delayed with Schneider and the footprint consolidation going ahead please?
Well, it's not too early to speak about about that, but we are needing capacity in this part of the world.
Yes. If you followed our figures in Q1, We have plans in India that are running at pretty, I wouldn't say full capacity, but close to full And the capabilities that would come with the redundancy actually are welcome. It's a lot of growth here.
All right. We'll take the next question please, operator.
We will now take our next question. From Jonathan Mounsey from BNP Paribas. Please go ahead.
Taking my question. Just looking at the slide, I see the future growth rates of the end market seem to support double digit sales growth going forward. Is that the right way to think about the deal? Is that what you're targeting for these assets over the next few years and CAGR at double digit rate? If it is, are there significant investment requirements needed to deliver that?
And then just secondly, on the actual announced synergies, I think 1,000,000 on think it's 1,000,000,000 of JV revenues. That's sort of 2.5% of sales. Is there potentially more on the table of that? That feels perhaps a little on the low side.
Emmanuel, can you take that?
Certainly, hi, Jonathan. On the growth rate, I think that Scal and Philippe highlighted the potential of the market, the fact that it's fit to gross market, it's going to be, of course, one of the fastest growing economy in the world and no doubt that we want to at least deliver the growth rate of the market. So if we've been talking about high single digit or double digit in the market where the JV is going to be positioned, that, of course, is, is our ambition. On the amount of synergies, so be careful, 1,600,000,000 is going to be the total of Schneider in the country, the JV is going to be north of 1,000,000,000, but that's part of this 1.6 1,000,000,000. So the 40,000,000, if you want, that are 4%.
And we think at that stage, it's a pretty fair assumption of the synergies. As always, if we can deliver more, we will no doubt, but at the said, we feel comfortable with this 1,000,000.
And what about the need to invest? And on the other side, you just mentioned that the factories are pretty full at the moment. To deliver these kind of growth rates? Is there a significant way to
On that one, I mean, you will not be surprised to hear that, of course, today, big part of the CapEx that we deliver at the group level is in this fast growing region and India is among them. So we are already, putting a significant part of the CapEx in this part of the world and notably in India and that will certainly continue So that's a dealer with growth that's taken into account. Of course, you know, the expectation that we have in term of return. But I would say it's not going to be a major change versus today. We are already investing a lot to grow our capacity in India.
The batteries you're sorry.
Correct. On the plan that are pretty full, the point I made is that with the growth we are driving on the child side, we have a good loading of our plants, and we would see the addition of the LMC, a manufacturer footprint has cost avoidance for us not to invest more into new just to make sure that one is in place.
Understood. So they add extra capacity, the Zunda utilization in their facilities you can use.
All right. Thanks, Jonathan. I think we move to the next question, please.
We will now take our next question from Simon Thompson from Berenberg. Please go ahead.
My first one is just a more of a general question.
I'm sure you've done a lot of
due diligence on this, but it's obviously still an emerging mark type deal and one could argue maybe it could also increase the general volatility in your business. When you look at EMA and it its market position, its financial profile management, do you would you expect this to be a very smooth deal for you with seamless integration synergies to be extracted easily or as often with maybe slightly larger deals in the country, could we see a bit more of a volatile performance in India, and I'd say the next couple of years. As you may be seeing this as a more 10 year type plus deal, to position yourself very early on in India, obviously? And secondly, Emmanuel, could you just talk a bit more color about the costs related to this deal. You mentioned, I think, integration costs of 1 to 1.5 times of synergies.
Is this of the total of the 40,000,000 run rate? And how should we think about the timing here of both the integration and transaction costs? And then lastly, is there any market split you can provide for E and A in any way, maybe in construction, industrial process, hybrid discrete in any way? Just to give us a rough idea of the exposure here. Thanks a lot.
Yes, maybe on the first part, on the due deal, On the time, yeah, we know each other because we've really worked intensely, on India for the past 18 years. I know that very often when people speak about Schneider, they speak a lot about China, which China is just 12% of what we do, but actually with built India, probably even more in the past, in the past 18 years. So what LMT does is exactly what Schneider does with the differences I explained, but it's in the core, the core. So we know the business We know the teams, actually, I was mentioning a lot of respect between the teams. It's a dialogue that has been lasting for long, not for long reasons.
It was really to make sure that, this merger would be effected in the right conditions. So all of this, I think, guarantees that there is a good approach and of what is, is having in here. Now on the volatility of, of emerging economies, frankly, when I look back in the past years. I don't know what was the most volatile, if it was mature economies or it was emerging economies. Actually, what we've shown is that we were able to navigate in emerging economies and when you, like, take the long view, the growth in those new economies has been the growth on the profitable growth coming from those new economies has been more convincing in many times and the one of mature economies.
I do love the fact that we're a balanced company between the two categories. But I wouldn't take the kind of use that emerging economies are always more volatile. Maybe individually are, but group or cluster of new economies for us has proven to be a good business certainly more demanding, ask you to get outside your zone of comfort to do special products, special approaches, certainly to be very landed on the ground, but once you are there, I mean, you're part of the landscape, and it's been part of been rather good expense. Will it be a smooth deal? Frankly, it's now for the teams to make it really happen.
It starts on a very good ground on the wrong history but it's going to be a lot of hard work. What I've seen in the past is doing deals which are slightly larger is probably not easier, but more guarantee of success than the string of very small ones, very small ones, because, yes, you have mature organization that know how to handle those kinds of situations. Okay. On the cost,
yes, taking the cost. Absolutely. Mean, the traditional cost for this kind of operation and given the size, the cost to implement the synergy 1 to 1.5 times, of course, you know, that stage is still a rough estimate. You should expect that to come in the 1st 2 years, mainly following the closing of of the transaction. Same for the costs related with the deal, the EUR 20,000,000 to EUR 30,000,000 which are the cost of advisors, lawyers, bankers and advising, which should come again in the first 2 years following the transaction.
In the end market details, I know as I said, but I'm sure you will appreciate that the business being a part of the listed business, we cannot provide information that themselves are not providing today. And therefore, we're not able to share more at this stage than what we've been sharing with you so far.
All right. I think just mindful of time. I think we have another 5, 6 minutes, and I see that another 3 questions. So in order to accommodate, if you can keep it to one question so we can can try to bring everyone if possible. Next question please.
We will take our next question from Alastair Lesley from Societe Generale. Please go ahead.
Hi, good morning. It's also clear that it's a top line growth project, but there did seem to be a recognition on the last and core that the position of of the business E and A. It slipped a little recently perhaps reflecting some under investment, perhaps a lack of focus. So I guess boosting R And D investment and innovation is going to be a focus of yours. I was just wondering how quickly you can refresh the product portfolio and we integrate that top line momentum.
And then maybe also whether there are any areas of the portfolio that perhaps require particular attention?
Thank you.
Again, I'm not sure I would look at the performance of that business across 1 year, I mean, across the past 5 years, there has been growth in that business. I think again, the team has been more disciplined on bottom line. Fair enough, the shareholder of NSE electrical and automation was probably more focused on some of the businesses. And I would say the team is extremely pleased to possibly join a shareholder that would be full on across the core business because for us, that's across the core business. Frankly, when I look at I mean, with one, we've not been able to dive into all details of the product portfolio.
We see actually quite some offers that we would like to get out of India because we see potential here, then it's too early to broadcast the decision will take product line by product line. We started to assemble our thoughts. It's actually a two way street there are things we see from China that could flow in India, but there are many things we see from an NPE that actually very interesting for our portfolio. So again, a very strong complementarity for India. I don't share the point of view that the offers of Fidelity in India are the major gap.
There are many things that are actually pretty good alongside with the footprint. I see actually a tough excitement from our team to bring these out of India. And actually help with, let's say, the synergies we would drive. And then to go in the detail, we'll communicate in due time, but I can really testify a strong appetite on both sides to leverage the complementarity on the R and D side.
And we are very happy with the people, the few people we have meet in terms of competitors, knowledge, on experience, quite impressive.
There is one thing where we know we can do, which is on the percent. That's very clear. That's one thing on which probably LMT did not invest so much because indeed these are significant investments that's true for both the go to market and the product themselves. That's very, very clear. Now for the rest, they are coming with a lineup of good cost effective reliable product that we really like possibly in the portfolio side once we go through that that phase of signing to closing.
We will now take our next question from James Moore from Redburn. Please go ahead.
For taking the questions. Can I clarify one thing and then ask a question? Just to clarify the answer you gave earlier, Emmanuel, when you say nothing's cast in stone, on a TeleTech exit. Can you confirm there's no put option in place? And if there is a put option in place, can you give the date and price and any financial metrics needed to strike it.
My question is really on the percentage of E and A sales that will go into what division should we assume 3 of the E and A divisions go into low voltage and the control and automation piece goes into your industrial automation division? And if so, is there a margin difference between which pieces go into which divisions? I'm just trying to get divisional modeling, right,
So, James, on the first question, there is no general good option. I confirm and repeat and the option for exit are open. As I said, I think what you should factor in is the fact that it's not a short term exit. It's a long term partnership. And if there is exit 1 day, it will be after a significant period of time where we will have together developed the business.
And then we'd see at that time, but again, in the long distance future, what is the shape of the eclipse? On the second question, we're asking for more detail on because I mean, as I said, being a listed business, we're not going to provide any more detail on the LMT E And A business. So I'm not sure what you are asking for, at that stage.
Try and ask the question a different way. You're going to fully consolidate. You already have your Schneider India, low voltage, IA revenues. The extra 700,000,000 of revenues are gonna come in. I guess they're not all going into one division, and I'm trying to understand how they split?
Is it 500 into low prices?
For for for our business, you were you were asking. Yeah.
And you provided on page 12, a split of these.
Yes, you should we'll provide you with the detail once you have the clear cut between the two, but you should assume it's a it's vast in the low voltage business today?
Is it actually in the Control And Automation segment? Of E and A is the one that's going to not be in low voltage.
So you're seeing for the future now
or you're asking for that?
There are 4 units of the Electrical And Automation Division of L And T. And the CSCSE and the 4th one, the CNA, I'm assuming CNA goes with it. Okay.
Yes, very good question, James. As soon as we have the information, we'll share that with you in a know exactly what's going to where the numbers are going to, to be categorized and what's going for automation. So I'm not going to give you a correct answer this morning. So I prefer to keep that with us and come back to you once we have a reliable answer.
All right. Thanks for that, James. I think we're at the hour. I think there's one question which is still in line would be unfair. So we'll take that and hopefully we can wrap it up after that.
Operator, last question, please.
We will take our final question from William Mackie from Kepler Cheuvreux. Please go ahead.
Hi. Yes. Thank you for taking the question and congratulations on what must have taken a long time to get to this point. A couple of outstanding questions. You have described on the market on page 8, I think, an overall growth trend, but could you give us a sense of how big you see the markets in India for the relevant businesses where are being combined within there, and then within the two businesses.
And then there are 2 points of clarification. 1, just background on why Temasek are with you as a partner. Right? You've made very clear the benefits of them, but just how did they come to the table And then lastly, how long do you expect the Indian competition clearance process to take?
I didn't understand your first question, Frankly. On the two markets, energy management on automation,
Well, you've described the scope of the business in terms of its size. You described the overall growth potential in India as a whole. But, being a bit more specific, can you scope the end markets that are relevant, for this combination with Lawson Turbot and your own business? Probably
not at this stage. I think what we've described before are the dynamics of the end markets, going around urbanization on on the infrastructure, going around electrification, going around automation on manufacturing. I think that's the part of the answer to what you have. And then when you look at Energy Management And Industrial Automation, as you know, well from Schneider's strategy, they combine very often in, in sectors like industry on infrastructure, on power automation. So what we see anyways after putting together quite a lot of projections that those markets will, will, will, would grow high single digit to double digit to what we see today.
On there, I would say we speak of experience because now we've got those 18 years in, in the Indian market. Now the past is always easier to predict than the future. But what we see today as reform in the country is rather promising. On Timna's sake, frankly, while we are neighbors in Asia, we had dialogues going on. For a long time on what we could do together on this scene, a very good opportunity to work together.
So meeting of the minds, meeting of teams, people, and, on the we saw the opportunity to go together for some reasons. I side. On your third point, was
that On the that was Jean Pascal. I'll take that one on the competition clearance. We cannot come, of course, with a date. I think that it's reasonable to assume that that deal, should close in 2019. I'm not saying that you cannot think about more favorable scenario, but let's start with this view that is going to close in 2019.
All right. Thank you very much. We went a little over. So apologies to everybody for that on the call, but thanks for joining us this morning.
Thank you very much.
Thank you all, sir.
Thank you. You for your participation.