In a significant move, Siemens Ltd has announced its plan to demerge and list its energy business, following a similar strategy undertaken by its German parent company three years ago. This strategic demerger aims to create two independent companies, each with a focused strategy and market approach.
Overview of Siemens’ Demerger and Listing
Siemens Ltd’s announcement to demerge and list its energy business is set to reshape its operational landscape. The new entity, Energy India Ltd, will reflect the shareholding structure of Siemens Ltd, ensuring a seamless transition for shareholders.
Details of the Siemens Energy Business Demerger
Shareholding Structure
Shareholders of Siemens Ltd will receive one share of Energy India Ltd for every share they hold. This approach ensures that the ownership interests remain aligned and transparent.
Timeline for Demerger and Listing
The demerger and listing process is expected to be completed by 2025, providing ample time for a smooth transition and strategic realignment of the two companies.
Strategic Rationale Behind the Demerger
Different Market Drivers
Sunil Mathur, Managing Director and CEO of Ltd, highlighted that the energy and industrial businesses operate under fundamentally different market drivers. This divergence necessitates distinct strategic approaches for each business.
Capital Allocation Requirements
By demerging, aims to tailor its capital allocation strategies more effectively. The energy business will have the flexibility to invest in growth areas specific to its market, while the industrial segment can focus on its core competencies.
Historical Context and Similar Demergers
ABB India Ltd Case Study
The demerger approach mirrors that of ABB India Ltd, which successfully demerged its power transmission business, reflecting the shareholding of investors before selling its stake to Hitachi.
Previous Siemens Shareholder Issues
Siemens has faced shareholder dissatisfaction in the past, particularly regarding the sale of its low-voltage motors to Large Drives India Private Limited. The demerger strategy addresses these concerns by ensuring a cleaner transaction structure.
Advantages of the Demerger Approach
Clean Transaction Structure
Demerging and mirroring the shareholding structure ensures a transparent and straightforward transaction, minimizing potential conflicts and valuation disputes.
Valuation Transparency
By separating the businesses, provides clearer valuation metrics for each entity, enhancing investor confidence and market clarity.
Financial Performance and Future Plans
Recent Financial Results
Siemens reported a significant profit increase of ₹896 crore for the March quarter, up 74% from the previous year. Revenue also grew by 19% to ₹5,248 crore, driven by a strong order backlog.
Investment in Expansion
Siemens plans to invest an additional ₹500 crore to expand its manufacturing capacity in India. This includes significant investments in its smart infrastructure business and metro train manufacturing facilities.
Siemens’ Growth Strategy and Market Position
Order Backlog and Revenue Growth
The company’s strong order backlog has been a key driver of its recent financial performance. ‘ ability to secure large orders underpins its growth strategy.
Investment in Smart Infrastructure
Siemens will invest ₹333 crore in its smart infrastructure business factory in Goa, addressing the growing demand for critical components in various sectors.
Expansion of Manufacturing Capabilities
In addition to its existing bogie manufacturing facility, will invest ₹186 crore in a new metro train manufacturing facility in Aurangabad, further enhancing its production capabilities.
Conclusion
Siemens’ decision to demerge and list its energy business marks a strategic shift towards greater efficiency and focused growth. By addressing distinct market drivers and capital needs, aims to unlock value for its shareholders and strengthen its market position.
Google Pixel 8a Launched in India for Rs 52,999
FAQs
What is the timeline for Siemens’ demerger and listing?
The demerger and listing are expected to be completed by 2025.
How will the shareholding structure change post-demerger?
Shareholders will receive one share of Energy India Ltd for every share of Ltd they hold.
What are the strategic benefits of the demerger?
The demerger allows each business to pursue specific strategies, focus on core portfolios, and optimize capital allocation.
How has Siemens performed financially recently?
reported a profit of ₹896 crore for the March quarter, a 74% increase from the previous year, with a 19% revenue growth to ₹5,248 crore.
What future investments has planned?
Siemens plans to invest ₹333 crore in its smart infrastructure business and ₹186 crore in a new metro train manufacturing facility in Aurangabad.
