Siemens Ltd on Tuesday said it will demerge and list its energy business, on the lines of a global carve-out by its German parent three years ago.
The new company will mirror the shareholding of Siemens Ltd, and shareholders will receive one share of Siemens Energy India Ltd for every share of Siemens Ltd. The demerger and listing are expected to be completed by 2025.
The two independent companies will script new paths once the long-awaited demerger is complete, said Sunil Mathur, managing director and chief executive officer, Siemens Ltd.
Different market drivers
“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 take decisions on capital allocation,” he said.
Earlier, ABB India Ltd had structured the demerger of its power transmission business similarly, mirroring the shareholding of investors in the new entity before selling its stake to Hitachi.
Siemens Ltd has earlier faced shareholder ire in India when the company proposed to sell its low-voltage motors and geared motors to group company Siemens Large Drives India Private Limited. Shareholders had rejected the transaction after being dissatisfied with the ₹2,200 crore valuation. The valuation was arrived at and then certified by independent auditors.
A cleaner way
“Demerging the company and mirroring the shareholding of minority investors is a much cleaner way to do this transaction,” said Shriram Subramanian, managing director of proxy advisory firm InGovern.
“In selling the business to the parent, investors could have concerns over valuation and the parent cannot vote on it given that it is a related party transaction. Siemens Ltd has faced this issue in the past,” Subramanian said.
In 2020, parent Siemens AG had demerged its energy business into Siemens Energy AG. However, in India, listed Siemens Ltd continued to hold the energy business vertical. Last November, Siemens AG purchased 18% stake in Siemens Ltd from the new company Siemens Energy AG. In December, a new subsidiary Siemens Energy India Ltd was set up in preparation for the demerger in India. Over time, Siemens Energy AG will acquire a majority stake in Siemens Energy India Ltd, the company said.
Strong order backlog
On Tuesday, the company reported a profit of ₹896 crore for the March quarter, up 74% from a year earlier. Revenue grew 19% to ₹5,248 crore. Siemens said it will spend an additional ₹500 crore to expand capacity at its manufacturing plants in India.
Mathur attributed the revenue growth to the company’s “strong order backlog.”
“Our growth in profits includes volume and price effects, continued productivity measures as also gains on account of sale of property and dividend received from subsidiaries,” he said.
“Some large orders have been deferred. There has also been a slowdown in ordering of industrial automation products due to normalization of demand following shorter delivery cycles,” he added. During the quarter, Siemens received new orders of ₹5,184 crore.
Siemens will invest ₹333 crore in its smart infrastructure business factory in Goa to meet growing demand for critical components of the industry, infrastructure and power distribution sectors. It will also invest ₹186 crore in setting up a metro train manufacturing facility in Aurangabad. This will be in addition to the company’s existing bogie manufacturing facility at the same location.
