Good day, 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 Bhalla, Head of Investor Relations. Please go ahead.
Thank you, operator. Hello, welcome. Thank you for taking the time to be with us this morning. We are here to discuss, of 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, under financial releases. You probably received this through the email as well. Just to share this, today we have Jean-Pascal Tricoire, Chairman and CEO on the call. We have Emmanuel Babeau, Deputy CEO and CFO, and we also have Philippe Delorme, Executive VP and Head of our Low Voltage and Secure Power business. Just your reference to the disclaimer on page two as always, with that, I would like to hand it over to Jean-Pascal.
Yeah. Well, hello to all of you online, thank you for being with us to share on this acquisition or this formation of a new company with L&T Electrical & Automation. Well, first I would like to start by speaking about India, on the importance it has for Schneider, I am in slide four as we speak. Well, our first steps in India are dating back to 1963, it was actually Merlin Gerin at the time, working with Tata in a joint venture. That is a long time ago. Really, we started our development in India at the turn of the century. I was yesterday going through some of my archive. I think the turnover of the total of Schneider in 1999 was around EUR 60 million, or close to that, and we had a very, very small presence.
We have really worked on it a lot in the past 18 years. I would dare to say I have worked on it a lot myself. Today, it is our fourth largest market in 2017, with EUR 1 billion of revenues in India, 20,000 people, and a very complete presence of Schneider with 24 factories. We are 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 offices, 2,600 partners, still much less than Larsen & Toubro in this sector. Schneider has 1,400 R&D staff in R&D centers, and 1,600 shared services on back-office staff. A very, very consistent and very persistent development in India to kind of balance our presence in Asia, complement what we have 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 and Industrial Automation, it representing roughly 40% of our revenues. It's been growing double digits in the past two years. We can explain that later when we speak about the plans of India and how much consistent we are at Schneider Electric with those plans, with those directions. Luminous, which is specialized in power inverters, to stabilize power in Indian homes. That has been a tremendous success since the beginning of the joint venture. We've doubled the turnover and improved the profitability. We are present probably today, certainly, in twice more homes than we were at the beginning of this joint venture with Luminous and buildings.
Schneider Electric Infrastructure Limited, which is our medium voltage listed company, which is very much positioned on utilities in this case, but also supplying medium voltage to other applications. Our secure power business, our process automation business, two back offices that I already mentioned, back office, R&D and innovation center and our shared services. A very complete presence that make of India one of the largest countries of Schneider Electric. Slide five. Well, some examples that show how much we participate to the priorities of the Indian government and how much we participate also to 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&D and manufacturing included. We are part of many critical infrastructures in India.
We are participating actively at the Digital India, big plan of Prime Minister Modi. Two examples. The first smart city of the 100 smart cities in India, Naya Raipur, is using Schneider Electric integration technology. We, of course, do a lot of data centers in India as we do in the rest of the world. Green Energy for India. There again, we participate to solar development in India. We also work on micro projects in India. Finally, we really enable social inclusion. We are trained, and we are training a lot of youngsters, underprivileged youngsters, to the trade of being an electrician or work in automation in India. Slide six, I won't dwell on it, you've got more elements or examples of iconic projects to which we have, beyond the one I already mentioned, participated in the recent years. I will go on slide seven.
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. Today we see that the GDP, it's not us speaking, of course, these are more institutions, the GDP should double by 2025. If you look at the next three years under the impulse of the reform of Modi, that should be an addition of $800 billion. 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 two 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. What we see today from the government is a strong focus on manufacturing, on innovation, on, in parallel to the development of large companies, the development of startups with 5,000 startups today developing in India. 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 two 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 company in India. I'm going to come back to that. We export close, well, around 50% of what we produce in India.
Second point is everything which is related to Power for All and the national solar mission. Let me cluster them together. A big priority of Prime Minister Modi, which we serve in multiple fashion on the distribution network, in doing microgrids powered by solar. Everything which is around clean India, which drives to energy efficiency on infrastructure like water, wastewater infrastructure that we participate in cleaning, on all the creation of new infrastructure and especially Smart Cities that I already touched before. These are projects that we participate in. All of this makes strong drivers, and I'm in slide eight, for our two business. First one, which is energy management, medium voltage, low voltage, secure power based on strong urbanization, electricity consumption, which is growing, housing, which is driving there again, more electricity consumption.
On favorable reform that will lead to the improvement of the infrastructure sector. The fast development of India has created a lot of gaps that are needed to fill, that one need to fill in the next coming years. Transportation, which sees quite a lot of projects all over India. We see in energy management, the CAGR of the market, high single digits to double digits as we go forward. Same thing, we see now growing drivers for Industrial Automation. 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 automate. More FDI also coming in India, as India is becoming a bigger economy and more attractive from the business environment point of view.
While we see also investment in digitization into industries in India, so that they keep at the highest level of quality, which is already the case for a number of the industries developing there. There we see a potential of double-digit CAGR. If we look at all this, one place, and I already mentioned it, where we see a lot of potential, is the development of Make in India. Again, we supply technology, but we also produce and have decided to make of India already as we speak, an important manufacturing and innovation hub for Schneider. As we are today, 50% of our production is already for export on the pure Schneider side.
What we want here is, of course, to reinforce this base on the side of innovation, on the side of manufacturing, and I'll come back on that at the end of this presentation. India will be changing league and rank when we conclude the operation that we are describing here. Before I leave the floor to Philippe, who will explain you about Larsen & Toubro 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 contact between Schneider and L&T are dating back to 1999, very exploratory at that time. Mr. Naik, Chairman Naik was just appointed at that time. Personally, I think I had my first meeting with this company in 2002 when I was appointed at the head of the international division. Then we really had continuous contacts to really evaluate the interest of this combination for at least the past 10 years. It's not something that was done in a hurry. That's something that has matured solidly over time. With that introduction, Philippe.
Thank you, Jean-Pascal. Let's switch gear and dive into what this business, L&T Electrical & Automation, is. We are here on slide 11, where you see a first snapshot of what the company is. First of all, it's a company that has a majority of its 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. 5,000 people, five manufacturing locations that are extremely cost-effective. Slide 12.
If we dive one level down into what this company is made of, it's made mostly of four business divisions, the biggest one being electrical products, mostly circuit breakers, contactors, which is mostly a product business complemented by two arms of integration, one around equipment, low and medium voltage equipment, one around automation and one business that's more standalone around metering protection system. You have here a snapshot of the size of the different businesses and a customer portfolio that leverage 70 years of relationship, very strong local relationship, whether on the product side or on the segment side with Indian names here, that are big names. That really, alongside with all the contacts we've been having, long, long relationships that have been built over time.
In a nutshell, we have here a company with a great portfolio that is very close to the core of our core on page 13, that has a very strong access in two dimensions, one on really the coverage of the countries with more product approach and which what L&T calls stockists. Also in a segment approach and with integration capability. Point number three, a lot of talent, so highly experienced management team, talent in the field of innovation, R&D capabilities, and a very competitive manufacturing footprint. That, of course, is critical for India, but that we want to use outside of India in line with our India strategy. In the end, a great business that we believe can be a great addition to Schneider Electric.
Now I am going to pass it over to Emmanuel to explain to you and share with you how we are structuring that transaction. Emmanuel, up to you.
Thank you, Philippe. Good morning, everyone. Very pleased to be with you to comment this very important move for us. Indeed, let us move to the structure of the operation, and the value it is going to create. I am moving to the page 15 here with the headline of the structure. We are acquiring the L&T Electrical & Automation business. The price is INR 14,000 crore, which is equivalent to EUR 1.75 billion approximately. That corresponds to a valuation of about 15x the estimated EBITDA for the current fiscal year, the FY 2019, ending in March. We are acquiring that business, and we are going to combine it with the existing Schneider Low Voltage and Industrial Automation business in India, generating, of course, strong value and strong strength. We are doing that with a great partner. We are doing that with Temasek.
I will elaborate on the structure of the deal and what each party is bringing later on. Basically, we are going to set up a JV vehicle that will combine both the L&T E&A business and the Schneider Low Voltage and Industrial Automation business. In this vehicle, we will own 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. Clearly, there is a strong strength here in the combination, and it is about a great fit and a perfect complementarity between the two businesses that we are going to put together.
Schneider, of course, is coming with our strong technology platform, all our digital capacity and the global presence, and L&T E&A is coming with an unparalleled deep and capillary roots in India with a great domestic reach and fantastic, I would say, a specific addressing of the Indian market, manufacturing capability that are going to be also great to have, and of course, an R&D, which is specifically targeting the Indian market. This is going to enable our ambition for India, for the world, and Make in India clearly, and Jean-Pascal and Philippe have started to elaborate on that. Because you have such a great complementarity and fit, we're going to be able to generate significant synergy and create very nice value through that transaction. Moving to the next page, 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 reasons, of course, to have them in this great move. First of all, they are 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 in general, but in India in particular. Of course, we're going to benefit from their knowledge and skills in managing efficiently fast-growing businesses. Second, they 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. 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.
Third reason, having Temasek here as a partner illustrates, I would say, once again, the very disciplined capital deployment policy that we have. Like for AVEVA in this transaction, we are taking a majority stake in a stronger company by bringing existing assets at Schneider, but with a re-rating because we bring them at a higher multiple than their current valuation. 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 two companies will really have the feeling that it's a world of opportunity that is opening up for them.
To have Temasek as a partner here just shows that it's not an acquisition, it's really a combination, a 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. Let's go to page 17, where you got a snapshot of something that Emmanuel already alluded to, which is complementarity. Indeed, we believe that we have a very strong, I wouldn't say perfect, but really value-creative complementarity on a couple fronts. On the product portfolio side, number one. Number two on really the geographic presence, and we illustrate that on the R&D capability, number three. Number four, segment coverage. Number five, really expertise. Let's go on page 18, where we will illustrate some of those key complementarity points. One, on the offering side, let's take two example. One on the circuit breaker. The Schneider side comes with, let's say, one, a lot of scale, a lot of digital capabilities where we see with L&T a very cost-effective solution that we are, of course, very interested with.
That's what you see on the left side upper part. Lower part contactors, which for Schneider is a big and profitable business, and for L&T is a central business. Here again, we come with global offers. L&T 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 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 Bev, and so on.
Global names, in short, where actually L&T has been leveraging, again, 70 years of deep relationships, which are coming with segments that are, I would say, more locals. I think we were showing right before names that are very local names, on which at Schneider, we were probably having not as good as a reach as what L&T has been able to develop. Page 19, another illustration of the coverage, which is really the product coverage. I think you all realize how important is distribution in our business. Here, 70 years of history and relationship of the L&T teams, I would say extreme proximity. They consider nearly what they call the stockists are part of their family. Here, L&T is coming with a very good reach in tier 3, tier 4 cities where actually Schneider is not as strong.
In tier 1 and tier 2, what's striking is that we are coming with a very complementary reach to distribution, meaning the stockists or the distributors of L&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, counts as a very critical success factor. Page 20. Talking about innovation capabilities and, let's say, back office capability, R&D capability. We really see with the blend of those teams, not only an outstanding India for India innovation capabilities and actually manufacturing capability, but really India for global, whether for new economy or for mature. We see a very good, again, complementarity between our capabilities, both R&D and plants. To finish, page 21.
If we wrap it up, our project is to bring these teams together, leveraging those complementarities, leveraging Temasek, which has been extremely helping us a lot in how to form that partnership. Really with three things in mind in terms of characteristics 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. That's really our project, and now I will leave it to Emmanuel to talk about more the detail of the transaction and structure. Emmanuel?
Thank you, Philippe. Thank you. Absolutely. I'm on page 23, to introduce the structure of this combination, and that's where you see that we are creating this JV, which will be combining the L&T Electrical & Automation business together with the Schneider Low Voltage and Industrial Automation business in India. You see that Schneider will own 65% of the JV and Temasek will own 35%. 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&T business. In addition, we put in equity INR 3,425 crore, which is approximately EUR 430 million. Temasek is contributing in equity cash for INR 5,075 crore, and this is the equivalent of around EUR 635 million. All the numbers here are, of course, on the assumption of a cash-free, debt-free transaction.
This JV will have debt and will raise debt for an amount of INR 5,500 crore or approximately EUR 690 million. The business will be fully consolidated in Schneider Electric accounts. I mentioned this 15x EBITDA multiple, which is the valuation corresponding to the INR 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 EUR 140 million. As I said, it's going to be a synergetic transaction, we believe we can contribute at least INR 300 crore of synergies, mainly coming from cost synergy, I would say about two-thirds being cost synergies. There will be a 5-year ramp-up. I would say probably two-thirds of the synergy will have been generated in year 3.
If you take into account the full run rate of these synergies, the multiple of the transaction equals to about 11x 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. You have here four competitors, of course, you can find the reference, similar business being listed today in India. 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 a very fair multiple. I'm moving to the page 25, just to say that the transaction meets our financial returns criteria. It's going to be adjusted EPS accretive in year 1.
We're going to match the WACC of the group with the ROCE in year three. 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 way it 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 progressive dividend policy. The 1 billion share buyback continues, and the roadmap for M&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, underline that we are very consistent in the way we are looking at M&A. That's it for looking at the detailed structure of the deal and the value creation. Jean-Pascal, back to you for the conclusion.
As a conclusion, before we take possible questions. First, let me say that it's been, for us as a team, for me personally, many years of dialogue and discussion, which are taking form with signing this agreement on building a new capability in India. We've always had the utmost respect for Larsen & Toubro for what they do in our sector. The way they have developed into new sectors, it's been one of the phenomenal success of the Indian industry. This is clearly a project for growth, on the growth of India and the growth of the whole region. From that combined force, we're going to develop and manufacture products that are going to go into the whole regions and more largely into the rest of the world. It's a core of core.
What we are putting together is the global leader and the Indian leader together. There is a natural match of our business. Let me also say here that with that, India would become our third-largest market, on par with France. As Philippe described it, one of our four major hubs for innovation on manufacturing, therefore offering more balance for our company and offering more possibilities for the future. It's certainly much more than a project for India. It's a project that offers what we are building in India, perspectives on a global scale. With that, I think we can transition to questions. Amit, if you want to take the lead.
Yeah, sure. Thank you for that. I think we have about 20-odd minutes. I see there are some questions on the line, so we'll start with the first one. Operator?
Thank you. Just as a reminder, to ask a question today, please press star one. We will now take our first question from Gaël de Bray from Deutsche Bank. Please go ahead.
Thanks very much. Good morning, everybody. I have a couple of questions, actually. The first one is, I've noticed that the Larsen & Toubro business has not really grown that much over the past six or seven years. Could you perhaps elaborate on the reasons behind the lack of growth? Secondly, could you talk a bit more about the Indian competitive landscape for both industrial automation and low voltage? How fragmented these markets are, and what kind of market share and position will you eventually get in India post the transaction? Thanks very much.
Okay, Philippe?
Sure. On the first question, actually, L&T has been growing. To be fair, I think they've been also working on their profitability, and they have increased a lot their 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. 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. On your second point on the landscape of India is one of the most competitive market we have in the world for that core business. We have, of course, L&T, we have Schneider, but we have all the other names that you know, plus Indian local names.
Very different by product line, but it's extremely competitive. Very aggressive price level, very aggressive commercial practices. We believe that sense of competition will stay before and after that combination of businesses.
It's also a market where you have to be very local.
Yeah.
The standards of India on the conditions of the network of India are very specific. One of the difficulties that we face, and that we are still facing to a large extent, is that very often global offers are not making it to the Indian market for reasons of competitiveness. That, what we are signing together, would be a way to accelerate our localization on our capacity to fit the Indian market.
Okay, understood. Thanks.
Thanks, Gaël. Next question, please.
We will now take our next question from Andreas Reili from JP Morgan. Please go ahead.
Morning, everybody. I have a couple of questions as well on more on the details of the deal. Maybe first on financing, obviously, you can have quite a bit of leverage in this entity. Is this money raised locally or internationally? 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? Thirdly, what's the profitability of your business that you inject into the partnership? Thank you.
Emmanuel?
Yeah, 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. That will be to a large extent, internal financing to start with. Of course, it doesn't mean that it's going to stay like that forever. On the exit for Temasek, plenty of options are open, and there is nothing which I would say will be cast in stone. Therefore, we'll see after a period of time. Temasek is a long-term investor, so they are not around for just a couple of years. It's going to be longer than that. Then in term of exit, many options are on the table.
One of them could be an IPO of the business, there are also other options. At that stage, nothing is determined to be very clear. 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 L&T E&A business, and we're not going to give more details.
Is the multiple similar on EV sales or EV EBIT?
The reference is here on the EV EBITDA multiple.
Thank you.
All right. Next question, please.
We will now take our next question from James Stettler from Barclays. Please go ahead.
Hi, this is Tanuj Agrawal on behalf of James Stettler. The question is actually, you mentioned that Temasek would be bringing strong corporate governance with them. We just want to understand. If I heard you correctly, you also mentioned about cross-segment investment. If you can just elaborate on that, please. Also on the competitive landscape, just to follow up, actually. 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?
Well, I'm going to try to elaborate on Temasek. On the governance, we are putting together here two teams, who have both of them, a lot of pride. Larsen & Toubro and Schneider, not operating necessarily on the same markets as Philippe was explaining before. A lot of complementarity between the two presidents. On the fact we structure this as a JV with a third party gives a warranty for the people of Larsen & Toubro, 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 and done in the best interest of the company. On what we've seen also is that when we do integration like this, the fact we have a partner forces us to be even more rigorous.
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 us not comment on 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. You have to be extremely local, very performing on cost, very integrated in cost. We saw it at Schneider, till we did the investment of the local presence, we are not really making big steps in the country. I would say, yeah, it's another competitive place, but where innovation, where your network, where the way you approach the market is a recipe to progress.
Thank you.
All right.
Can I repeat again, that 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. You've got multiple layers on the market because of the standards, because of the demand on efficiency. It's a market where you have to be very efficient.
Just to follow up on that, since you mentioned about being local in the Indian market, how do you see the footprint consolidation there? L&T has manufacturing facilities, I think, on the west part mostly. How does that relate with Schneider and the footprint consolidation going ahead, please?
Well, it's far too early to speak about that, but we are needing capacity in this part of the world.
Yes. If you follow our figures in Q1, we have plants in India that are running at pretty, I wouldn't say full capacity, but close to full, and the capabilities that would come with L&T actually are welcome. There is a lot of growth here.
Thank you.
All right. We move to the next question please, operator.
We will now take our next question from Jonathan Mounsey from BNP Paribas. Please go ahead.
Hi, thanks. Good morning. Thanks for taking my question. Just looking at the slide pack, 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, a CAGR at a double-digit rate? If it is, are there significant investment requirements needed to deliver that? Secondly, on the actual announced synergies, I think EUR 40 million on, I think it's EUR 1.6 billion 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, Jonathan. On the growth rate, I think that both Jean-Pascal and Philippe highlighted the potential of the market, the fact that it is a growth market. It is going to be, of course, one of the fastest-growing economies in the world, no doubt that we want to at least deliver the growth rate of the market. If we have been talking about high single digit or double digit in the market where the JV is going to be positioned, that of course, is our ambition. On the amount of synergy, be careful, EUR 1.6 billion is going to be the total of Schneider in the country. The JV is going to be north of EUR 1 billion, but that is part of this EUR 1.6 billion. The EUR 40 million, if you want, are 4%. We think at that stage it is a pretty fair assumption of the synergies.
As always, if we can deliver more, we will no doubt, at that stage, we feel comfortable with this EUR 40 million.
What about the need to invest then 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 need to
On that one, you will not be surprised to hear that, of course, today a big part of the CapEx that we deliver at the group level is in this fast-growing region, and India is among them. 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. That's a deal with growth that's taken into account, of course, in all the expectation that we have in term of return. 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.
Are the factories here? Sorry.
Correct. On the plants that are pretty full, the point I made is that with the growth we are driving on the Schneider side, we have a good loading of our plants, and we would see the addition of the L&T manufactured footprint as cost avoidance for us not to invest more.
Right
into new. Just to make sure that we're on the same page.
Understood. They add extra capacity. There's underutilization in their facilities you can use.
Yes.
All right. Thanks, Jonathan. I think we move to the next question please.
We will now take our next question from Simon Toennessen from Berenberg. Please go ahead.
Yes, good morning, everyone. Thanks for taking the questions. My first one is just 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 market type deal, and one could argue maybe it could also increase the general volatility in your business. When you look at E&A and its market position, its financial profile, management, would you expect this to be a very smooth deal for you with seamless integration synergies to be extracted easily? As often with maybe slightly larger deals in a country, could we see a bit more of a volatile performance in India, let's 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.
Secondly, Emmanuel, could you just talk in 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 EUR 40 million run rate? How should we think about the timing here of both the integration and transaction costs? Lastly, is there an end market split you can provide for E&A in any way, maybe between construction, industrial, process, hybrid, discrete in any way, just to give us a rough idea of the exposure here. Thanks a lot.
Maybe on the first part, on the due deal On the time, 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, we've built India, probably even more in the past 18 years. What L&T does is exactly what Schneider does with the differences I explained, that it's in the core of the core. We know the business. We know the teams. Actually, I was mentioning it, a lot of respect between the teams. It's a dialogue that has been lasting for long, not for wrong reasons. It was really to make sure that this merger would be effected in the right conditions.
All of this, I think, guarantees that there is a good apprehension of what is happening here. Now, on the volatility of emerging economies, frankly, when I look back in the past 15 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, when you 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 than the one of mature economies. I do love the fact that we are a balanced company between the two categories, I wouldn't take the kind of view that emerging economies are always more volatile.
They may be individually are, a group or a cluster of new economies for us has proven to be a good business, certainly more demanding, asks you to get outside your zone of comfort to do special products, special approaches, certainly to be very landed on the ground. Once you are there, you are part of the landscape, it's been rather a good experience. 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 long history. It's going to be a lot of hard work. What I've seen in the past is that doing deals which are slightly larger is probably not easier, but more guarantee of success than the string of very small ones, because you have mature organization that know how to handle those kind of situations. Okay.
On the cost, Emmanuel?
Yeah, taking the cost, absolutely. The traditional costing for this kind of operation and given the size, the cost to implement the synergy, 1 to 1.5 time. Of course, at that stage, it's still a rough estimate. You should expect that to come in the first two years, mainly following the closing of the transaction. Same for the costs related with the deal, the EUR 20 million to EUR 30 million, which are the cost of advisors, lawyers, bankers in advising, which would come again in the first two years following the transaction. In the end market details, I know I just 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. Therefore, we're not able to share more at that stage than what we've been sharing with you so far.
All right. I think just mindful of time, I think we have another five, six minutes, and I see there are another three questions. In order to accommodate, if you can keep it to one question so we can try to bring everyone if possible. Next question, please.
We will take our next question from Alasdair Leslie from Societe Generale. Please go ahead.
Hi. Good morning. It's obviously clear there's a top-line growth project, but there did seem to be a recognition on the last call that the position of the business E&A had slipped a little recently, perhaps reflecting some under-investment, perhaps a lack of focus. I guess boosting R&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 reintegrate that top line momentum. Maybe also whether there are any areas of the portfolio that perhaps require particular attention. Thank you.
I'm not sure I would look at the performance of that business across one year. Across the past five years, there's been growth in that business. The team has been more disciplined on bottom line. Fair enough, the shareholder of L&T Electrical and Automation was probably more focused on some other businesses. I would say the team is extremely pleased to possibly join a shareholder that would be full on the core of the core business, because for us, that's the core of the core business. Frankly, when I look at the one, we've not been able to dive into all detail of the product portfolio. We see actually quite some offers that we would like to get out of India because we see potential here. It's too early to broadcast the decision we'll 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 L&T that are actually very interesting for our portfolio. A very strong complementarity for India.
I don't share the point of view that the offers of L&T in India are the major gap. There are many things that are actually pretty good alongside with the footprint. I see actually a lot of excitement from our team to bring these out of India and actually help with, let's say, the synergies we would drive. To go into 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&D side.
We are very happy with the few people we could meet in terms of competence, knowledge, and experience. Quite impressive. This, we knew it.
There is one thing where we know we can bring, which is on the digital side. That's very clear. That's one thing on which probably L&T did not invest so much because these are significant investments. That's true for both the go-to market and the product themselves. That's 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 of Schneider, once we go through that phase of signing to closing.
Okay, Amit.
All right. Next one, please.
We will now take our next question from James Moore from Redburn. Please go ahead.
Yeah, morning everyone. Thanks 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 Temasek exit, can you confirm there's no put option in place? 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&A sales that will go into what division. Should we assume three of the E&A divisions go into low voltage and the control and automation piece goes into your industrial automation division? If so, is there a margin difference between which pieces go into which divisions? I'm just trying to get divisional modeling right, really.
James, on the first question, there is no general put 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 one day, it will be after a significant period of time where we will have together developed the business. Then we'll see at that time, but again, in the long distance future, what is the shape of the exit. On the second question, where you're asking for more detail because, as I said, being a listed business, we're not going to provide any more detail on the L&T E&A business. I'm not sure what you are asking for at that stage.
Maybe I can 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 EUR 700 million of revenues are going to come in. I guess they're not all going into one division, and I'm trying to understand how they split. Is it EUR 500 into low voltage?
Ah. For-
200 into IA?
Sorry, for our business, you were asking.
Yeah, it was provided on page 12.
I would love that you should assume it's vast. Yeah. We'll provide you with the detail once you have the clear cut between the two, but you should assume it's vastly in the low voltage business today.
Is it fair to assume the control and automation segment of E&A is the one that's going to not be in low voltage?
Yes.
You're saying for the future now, or you're asking for the past?
No. There are four units of the electrical and automation division of L&T, and there's ESP, [inaudible], ESE, and the fourth one, the C&A. I'm assuming C&A goes into IA.
Well, Frankly, yeah. Yeah. Very good question, James. As soon as we have the information, we'll share that with you once we know exactly where the numbers are going to be categorized and what's going for automation. We're not going to give you a correct answer this morning. I prefer to keep that with us and come back to you once we have a reliable answer.
All right.
Thank you very much.
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 markets on page eight, I think, an overall growth trend. Could you give us a sense of how big you see the markets in India for the relevant businesses which are being combined within there, then within the two businesses? There are two points of clarification. One, just background on why Temasek are with you as a partner. You've made very clear the benefits of them, just how did they come to the table? 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 and automation?
You've described the scope of the business in terms of its size. You've described the overall growth potential in India as a whole, being a bit more specific, can you scope the end markets that are relevant for this combination with Larsen & Toubro 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 infrastructure, going around electrification, going around automation on manufacturing. I think that's part of the answer to what you ask. When you look at energy management and industry automation, as you know well from Schneider Electric strategy, they combine very often in sectors like industry on infrastructure, on power automation. What we see anyway is after putting together quite a lot of projections, that those markets would grow high single digit to double digit to what we see today. There, I would say we speak of experience because now we've got those 18 years in the Indian market. The past is always easier to predict than the future, but what we see today as reform in the country is rather promising.
Temasek, frankly, while we are neighbors in Asia, we had dialogues going on for a long time on what we could do together. This end, a very good opportunity to work together. Meeting of the minds, meeting of teams, people, we saw the opportunity to go together for the reasons I said. Your third point, what?
That was Jean-Pascal. I'll take that one. The competition clearance. We cannot come, of course, with a date. I think that it's reasonable to assume that the deal should close in 2019. I'm not saying that we cannot think about more favorable scenario, but let's start with this view that it's going to close in 2019.
Okay.
All right. Thank you very much. We went a little over, apologies to everybody for that on the call, thanks for joining us this morning.
Thank you very much. Thank you all.
Thank you. Bye.
That concludes today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.