Siemens to Demerge and List Its Energy Business in India

Siemens to Demerge and List Its Energy Business in India

Siemens to Demerge and List Its Energy Business in India

In a significant move aligning with its global strategy, Siemens Ltd announced on Tuesday that it will demerge and list its energy business, Siemens Energy India Ltd, by 2025. This initiative mirrors a similar global carve-out by its German parent company, Siemens AG, three years ago. This strategic demerger aims to streamline operations and enable focused growth in their respective domains.

A Strategic Shift

Sunil Mathur, the Managing Director and Chief Executive Officer of Siemens Ltd, emphasised that the demerger is designed to create two independent companies that can better pursue their specific strategies and focus on their core portfolios. 

"The underlying market drivers and capital allocation requirements are fundamentally different in the energy business compared to the industrial business. The demerger will enable both companies to pursue their specific strategies, focus on their core portfolios, and make independent decisions on capital allocation," Mathur said.

Shareholder Benefits

The new company, Siemens Energy India Ltd, will mirror Siemens Ltd's shareholding. Shareholders will receive one share of Siemens Energy India Ltd for every share they hold in Siemens Ltd. This method is seen as a cleaner and more efficient way to execute the transaction, ensuring that minority investors' interests are safeguarded.

Historical Context

This approach contrasts with Siemens Ltd's previous experience, where a proposal to sell its low-voltage motors and geared motors to a group company faced shareholder resistance. The shareholders rejected the transaction due to dissatisfaction with the ₹2,200 crore valuation, even though it was certified by independent auditors. This past issue highlighted the complexities and potential conflicts in related party transactions.

Siemens AG's Global Strategy

In 2020, Siemens AG, the parent company, demerged its energy business into Siemens Energy AG. However, Siemens Ltd in India continued to hold the energy business vertical. To prepare for the demerger in India, Siemens AG purchased an 18% stake in Siemens Ltd from Siemens Energy AG last November. Subsequently, Siemens Energy India Ltd was established as a new subsidiary in December. Over time, Siemens Energy AG is expected to acquire a majority stake in Siemens Energy India Ltd, further aligning the Indian operations with the global structure.

Financial Performance and Investments

On the financial front, Siemens Ltd reported a robust profit of ₹896 crore for the March quarter, marking a 74% increase from the previous year. The company's revenue also grew by 19% to ₹5,248 crore. Mathur attributed this growth to the company's "strong order backlog" and effective management strategies. 

"Our growth in profits includes volume and price effects, continued productivity measures, as well as gains from the sale of property and dividends received from subsidiaries," Mathur asserted.

During the quarter, Siemens received new orders worth ₹5,184 crore, although some large orders were deferred. There was a slowdown in the ordering of industrial automation products due to the normalisation of demand following shorter delivery cycles.

To meet growing demand and enhance its production capabilities, Siemens Ltd announced plans to invest an additional ₹500 crore to expand capacity at its manufacturing plants in India. The company also plans significant investments in its smart infrastructure business and metro train manufacturing.

Smart Infrastructure Business

Siemens will invest ₹333 crore in its smart infrastructure business factory in Goa. This investment aims to meet the increasing demand for critical components in the industry, infrastructure, and power distribution sectors.

Metro Train Manufacturing

In addition to its existing bogie manufacturing facility, Siemens will invest ₹186 crore in setting up a metro train manufacturing facility in Aurangabad. This investment underscores Siemens' commitment to supporting the burgeoning urban transportation sector in India.

Conclusion

The demerger of Siemens Ltd’s energy business into Siemens Energy India Ltd represents a strategic move designed to enable focused growth and improved capital allocation for both entities. By mirroring the shareholding structure, the company aims to ensure a smooth transition and protect shareholder interests. With substantial investments planned for capacity expansion and new projects, Siemens Ltd is poised to continue its strong performance and contribute significantly to India's industrial and energy sectors.

As the demerger and listing are expected to be completed by 2025, stakeholders are optimistic about the opportunities this strategic reorganisation will bring. The creation of two specialised entities will likely foster innovation, efficiency, and growth, positioning both Siemens Ltd and Siemens Energy India Ltd for a successful future in their respective markets.

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