Minority investors compel Suzuki Corp to infuse Rs 3,000 crore more in Gujarat project

While Maruti Suzuki India Ltd (MSIL) awaits the post-election policies of the new government to revive the passenger car industry, parent Suzuki Motor Corp’s investments in its proposed Gujarat subsidiary for manufacturing cars for MSIL will see an infusion of an additional Rs 3,000 crore equity.

The earlier announcement by Suzuki Motor Corp involved funding the Gujarat plant with equity of Rs 3,000 crore, depreciation and mark-up on the price of the cars sold to MSIL. Following considerable discontent amongst minority investors on the mark-up pricing that would reduce the profits of the carmaker, the mark-up option has now been dropped.

“The equity will increase to that extent. We expect additional equity that will come in to be Rs 3,000 crore plus. The original Rs 3000 crore remains unchanged but now the funding will be through equity plus depreciation,” chairman R C Bhargava said while announcing MSIL’s annual results today. Bhargava does not expect the final contract manufacturing agreement will be inked before August-September this year for setting up Suzuki’s Gujarat subsidiary. 

The status quo on the upcoming Gujarat manufacturing facility however remains unchanged from its status after the company’s board meeting held on March 15. 

“We are going ahead with all the steps for getting the contract manufacturing agreement formulated and approved by our board. But we also need to get the other part of the agreement related to setting up the Gujarat subsidiary approved as well as getting their inputs on the agreement. Legal advice is also to be sought on taxation matters and what would be the most effective means of getting cars manufactured in Gujarat in terms of tax liabilities or litigations. Once this is done, we will communicate all this to the shareholders. We will conduct road shows and meet shareholders for it. Having done this, we will have a voting on the minority shareholder position. We said this in March and this still remains the same,” added Bhargava.  

He clarified that Suzuki’s investments in Gujarat would enable shareholders to earn several more thousands of crore of profit over the next 15 years as well as avail of other future opportunities that would not have been available otherwise.

Meanwhile, Maruti Suzuki will rollout three new models during 2014-15 and plans to use its existing cash reserves of Rs 8,800 crore as on March 2014 towards new product development and on investments in expanding the market network. 

An additional Rs 1,000 crore is expected to be added to the cash reserves this fiscal strengthening the company’s ability to increase its marketing expense.

In 2013-14, Maruti Suzuki sold 1,155,041 vehicles, a drop of 1.4 percent over the previous fiscal. Sales in the domestic market stood at 1,053,689 units, a growth of 0.3 percent. Exports were 101,352 units, a drop of 15.8 percent.

MSIL registered net sales (net of excise) of Rs 426,448 million, up 0.1 percent over the previous year. Net profit was Rs 27,831 million, a growth of 16.3 percent compared to 2012-13. Cost reduction and localisation initiatives along with a favourable exchange rate helped improve profit margins despite the tough economic conditions.