Decoding the Siemens Energy demerger

Decoding the Siemens Energy demerger

In today’s Finshots, we simply break down the Siemens Energy demerger.


The Story

On Wednesday, Siemens India’s stock jumped 4%.

The reason?

The National Company Law Tribunal (NCLT) gave the company the green light to spin off its energy business into a separate entity, Siemens Energy India. Soon, this new company will be listed independently on the stock exchanges.

And the plan is simple. If you hold one share of Siemens India today, you’ll get one share of Siemens Energy India post demerger. Sounds like a good deal, right?

After all, more shares mean more potential upside if both companies thrive. But that’s not the only reason Siemens India is splitting its energy business.

But before we tell you more about that, let’s take a step back and understand Siemens India itself. What it does, how it grew and why it’s such a big deal in the engineering space today.

You see, back in the 1800s, if you wanted to send a message from one country to another, you had to put it on a ship and wait, sometimes for a whole month. That’s how long it took for news to travel from Britain to India. But in 1870, a German electrical engineer, Werner von Siemens, changed the game. His company built an 11,000 km long telegraph line connecting the two countries. Suddenly, a message that once took weeks could now reach Calcutta (then India’s capital and now Kolkata) from London in just 28 minutes.

Now we know what you’re thinking. 28 minutes is painfully slow in today’s world of instant messaging and social media. But back then it was nothing short of revolutionary. And it also marked Siemens AG’s very first footprint in India.

Fast forward to 1922, Siemens officially set up shop in the country. Post independence, the company expanded aggressively, setting up its first manufacturing unit in Bombay (now Mumbai) in 1955. Over time, it diversified, getting into medical equipment, electrical motors and a whole range of industrial technologies.

Cut to today, Siemens India is a giant, with five key business segments. The biggest is Smart Infrastructure, which contributes to 32% of the revenue and helps manage energy efficiently with smart metres and electricity grid solutions. Then there’s the Energy segment (contributing to 30% of the revenue), which provides power transmission solutions for industries like oil & gas, railways and construction. For example, Siemens bagged an order to electrify the Bengaluru Metro Phase 2 project last year. Next, we have Digital Industries, which makes software and sensors for sectors like manufacturing, auto and pharma. Mobility focuses on technology for trains, metros and railway infrastructure. And finally, the smaller segment that covers other revenue sources like those from healthcare which focuses on developing medical technology like MRI and CT scanners.

Now all of these segments put together have helped Siemens India generate ₹20,500 crores in revenue in FY24 (ending September, since it follows an October-September financial year like its parent company). That makes it the fifth largest revenue contributor to Siemens AG, contributing about 4% to the group’s topline and the fastest growing one at that.

But Siemens wants more. With India’s manufacturing boom, the company sees an opportunity to push its Indian operations higher in the ranks. It wants to make it the third or fourth largest revenue contributor for Siemens AG over the next three years. That’s exactly why it’s closely following its parent company’s playbook.

For context, back in 2020, Siemens AG decided to demerge its global energy business. The idea was simple — allow the energy segment to operate independently without dragging down the broader company’s performance. And in hindsight, it was a smart move. Between 2020 and 2023, Siemens AG racked up €7 billion worth of losses. But after the demerger, Siemens Energy (the global entity) turned things around, posting a profit of €480 million in Q1FY25 or nearly double what it made in the same period in 2024.

And you could say that Siemens India is hoping for a similar success story.

The energy business has different growth drivers, capital requirements and risks compared to Siemens India’s other segments. So running it as a separate entity could help unlock value for both the company and its shareholders. And post demerger, the promoters, Siemens AG and Siemens Energy Holdco will continue to own 75% of Siemens Energy India, while public shareholders will hold the remaining 25%.

And there’s already momentum. The energy segment’s new orders grew 30% YoY in FY24, reaching ₹8,800 crores. Its order backlog jumped by the same percentage to ₹10,050 crores, while revenue grew 5% YoY to ₹6,280 crores. That’s solid progress.

But, of course, no big change comes without risks.

One potential concern is working capital pressure. Siemens Energy (global) has seen this firsthand. A note by S&P Global explains that while the company has been generating a positive free cash flow since its 2020 spin off, this has largely been due to advance payments for new equipment orders. With its order backlog ballooning from €80 billion in 2020 to €123 billion in 2024, contract liabilities (or money it has received for work yet to be done) also surged from €10 billion in 2020 to €19 billion in September 2024.

So yeah, while a growing order backlog might seem like a good thing, it can also put a strain on Siemens Energy India, just like it has for its global counterpart as handling more orders and growing revenue also means that Siemens Energy India might need to spend more on things like raw materials and inventory.

We’ll only have to wait and see though, how it all pans out.

Until then...

Note: An earlier version of this story wrongly mentioned that Siemens India follows an October-March financial year. We regret the error and have now corrected this to October-September.

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