Siemens AG will hold a 70 per cent stake in the new company and Siemens India (SIL) will own the rest. The German giant's board cleared the decision last week.
The equity capital of the new company is likely to be more than Rs 500 crore. Such a huge equity is in anticipation of a turnover of some $1.5 billion (about Rs 5,400 crore) from the company's operations. The new company will have three divisions: basic services, cellular services and transmission products.
Company sources said Siemens Telecom -- a joint venture between Siemens AG and Bharti Telecom -- would continue to be a separate company.
The restructuring is expected early next year. "By then, the assets of Siemens'telecom operations will be transferred," a top executive said.
The Siemens AGE board is yet to decide on the fate of SIL's two plants -- a switch-making factory in Saltlec, Calcutta, and an optical fire factory in Aurangabad. Both the plants have been operating at very low capacities owing to a paucity of orders from the department of telecommunications.
The Saltlec facility is likely to continue operations to service Indian customers though there has been speculation that it will be closed down. The Siemens AG board will take a decision soon on whether the Aurangabad factory should be kept operational. "There is a proposal to shut down the plant and ship to Shanghai where our factories cannot keep up with the demand," the executive said.
According to him, the rationale behind the restructuring is that the manufacture and supply of telecom equipment is a long-gestation business and takes between three and seven years to make returns. Until then, companies in this productline will make losses.
In fact, SIL had made a loss of Rs 24 crore last year and this was largely owing to lack of telecom orders. The Siemens AG management felt that this is not in the best interests of SIL shareholders. Besides telecom, the other businesses of SIL are power, medical engineering, software, turnkey projects and lighting.
By creating a separate company to handle its telecom business, Siemens AG garners a sizeable chunk of expected the profits from selling its telecom products in India. "If it (Siemens AG) is taking the risk of the telecom business paying off, it is only fair that the company makes the profits," the executive said.
The cellular equipment arm of the SIL garnered $192 million (Rs 690 crore) worth orders from the cellular service companies. At least, one-third of this revenue is expected to accrue next year, by which time the new company would have been floated.
The basic services and transmission equipment lines of business are also expected to be money-spinners. Sources expect Siemens to get orders worth $1.2 billion (Rs 4,320 crore) from contracts for supply of basic service.
