How do you assess the costs of the vehicles at the SMC subsidiary if the models being made there are different from those in MSIL
We will be in charge of sourcing from the vendors and we know the cost of components. What they make is what we tell them to make.
How do shareholders know that the pricing will be arms length and transparent
Whatever profit made in Gujarat, will be made by us, we will get the car at a cost without the RoE. So the price will be lower to the extent of the return on equity. If SMC is putting in R3,000 crore, and theyre not taking back any profit, where does that profit go It has to go somewhere. The subsidiary will not accumulate a surplus, it will run as a no-profit, no loss entity and therefore they will not remit anything. The royalty will be paid by us and the licence for any product is with us, not with them. They are only a manufacturer.
Why is SMC making the investment if is not going to earn a return
SMC will realise its profits through MSIL. They are investing here because they earn a zero return in Japan. Had they brought in the money through preference capital they would not have made the same return. And a yen loan would have hurt MSIL.
The clarification issued by MSIL in February envisages that SMCs Gujarat subsidiary will be merged with MSIL after 15 years...
We have said 15 years but people have suggested that we lengthen the contract manufacturing period. So we need to see what happens when we lengthen that period of the contract to say 25 years. With the new Companies Act, a merger would require minority shareholders to vote on the proposal.
Has this proposal been pushed through to avoid the new clauses in the Companies Act
No, the proposal has been in the works for a long time. Sebi had written to us last month asking for some information and we have provided that.
There will be a mark-up to take of the capex, how much will that be
Yes, there will be a mark-up to the fund the capex, how much this will be is still to be discussed. Also how additional equity SMC will bring in is also to be decided. Over a 15-year period the additional capex required will be close to Rs 3,000-4,000 crore. The total investment envisaged over the long term is approximately Rs 18,000 crore. The initial 2.5 lakh units will cost Rs 3,000 crore while each addition of a similar capacity will cost Rs 2,500 crore approximately. The depreciation over a 15 year period will be roughly Rs 13, 000 crore or so.