In a notable step that aligns with its global strategy, Siemens Ltd announced on Tuesday its plan to demerge and publicly list its energy business, Siemens Energy India Ltd, by 2025. This move echoes a similar global reorganisation by its German parent company, Siemens AG, undertaken three years ago. The strategic demerger aims to streamline operations and foster focused growth within their respective sectors.
Sunil Mathur, Managing Director and Chief Executive Officer of Siemens Ltd, highlighted that the demerger aims to establish two independent companies. This will enable each entity to pursue its specific strategies more effectively and concentrate on its core portfolio.
"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 asserted.
Siemens Energy India Ltd will have a shareholding structure identical to that of Siemens Ltd. Shareholders will receive one share of Siemens Energy India Ltd for each share they own in Siemens Ltd. This approach is considered a cleaner and more efficient way to execute the transaction, protecting the interests of minority investors.
This strategy contrasts with Siemens Ltd's earlier experience, when a proposal to sell its low-voltage and geared motors businesses to a group company encountered shareholder resistance. Shareholders opposed the transaction, dissatisfied with the ₹2,200 crore valuation despite its certification by independent auditors. This previous incident underscored the complexities and potential conflicts inherent in related-party transactions.
In 2020, Siemens AG, the parent company, separated its energy business into Siemens Energy AG. However, Siemens Ltd in India retained its energy business vertical. To pave the way for the demerger in India, Siemens AG acquired 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 anticipated to acquire a majority stake in Siemens Energy India Ltd, aligning the Indian operations with the global structure.
In terms of financial performance, Siemens Ltd announced a strong profit of ₹896 crore for the March quarter, reflecting a remarkable 74% surge compared to the previous year. Additionally, the company's revenue saw a substantial growth of 19% to reach ₹5,248 crore. Mathur credited this growth to the company's robust 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 said.
Throughout the quarter, Siemens secured new orders totalling ₹5,184 crores, although certain significant orders were postponed. The ordering of industrial automation products experienced a slowdown due to the normalisation of demand following shorter delivery cycles.
In response to increasing demand and to bolster its production capabilities, Siemens Ltd announced plans to invest an extra ₹500 crore into expanding capacity at its manufacturing facilities in India. Additionally, the company is poised to make substantial investments in its smart infrastructure business and metro train manufacturing.
Siemens is set to invest ₹333 crore into its smart infrastructure business factory located in Goa. This investment aims to fulfil the rising demand for essential components in the industry, infrastructure, and power distribution sectors.
Alongside its current bogie manufacturing facility, Siemens will allocate ₹186 crore toward establishing a metro train manufacturing facility in Aurangabad. This investment reflects Siemens' dedication to bolstering India's expanding urban transportation sector.
The demerger of Siemens Ltd's energy business into Siemens Energy India Ltd signifies a strategic move to facilitate concentrated growth and optimised capital allocation for each entity. The company aims for a seamless transition while safeguarding shareholder interests by replicating the shareholding structure. With substantial investments planned for capacity expansion and new ventures, Siemens Ltd is well-positioned to sustain its robust performance and contribute substantially to India's industrial and energy landscapes.
As the demerger and listing are expected to be completed by 2025, stakeholders are optimistic about the potential opportunities arising from this strategic restructuring. The establishment of two specialised entities is poised to cultivate innovation, enhance efficiency, and drive growth, positioning both Siemens Ltd and Siemens Energy India Ltd for a prosperous future within their respective markets.
