Investors convinced, confident that Gujarat plant proposal will pass: Maruti Suzuki MD Ayukawa

Written by Roudra Bhattacharya | New Delhi | Updated: Aug 23 2014, 02:09am hrs
Maruti Suzuki is confident that all opposition to its Gujarat plant proposal has been put to rest and minority shareholders are now convinced of the merits of the revised plan, its managing director Kenichi Ayukawa said on Friday. The country's largest carmaker now aims to seek a formal shareholder nod in October through a postal ballot as per the Companies Act, it needs a three-fourth majority for its proposal to go through.

Because of the way we communicated our sincerity to the investors, we did not get any negative response. We are expecting better results, but its not finalised yet. We expect to seek a shareholder nod in 1-2 months, Ayukawa said.

Added chairman R C Bhargava, The Gujarat structure we have envisaged is beneficial to Maruti shareholders and there are no real issues on this now. The only major issue raised by institutional investors now is why higher dividend are paid to Suzuki Motor Corporation and on royalty.

First announced in January this year, Maruti's proposal was to to let its Japanese parent Suzuki Motor Corp (SMC) invest in the mega manufacturing plant at Gujarat and then sell the cars to Maruti for further retail. This had met with stiff opposition from investors - about 16 major investors had written to the company and its board members saying that this limited Maruti's growth prospects and affected its profitability because it will end up paying a higher amount to SMC's fully-owned Gujarat subsidiary for finished cars, than what it would cost to make them itself.

Maruti's board then revised the Gujarat manufacturing agreement, changing a key element that said that cars sold to Maruti by SMC's fully-owned Gujarat subsidiary will not have any mark-up on the pricing, and Suzuki's intial equity investment into Gujarat will be doubled to about Rs 6,000 crore.

Armed with this new proposal, the top management, including Ayukawa and Bhargava, have held several meetings with investors since mid-July both at home and overseas. As per a presentation given to investors, Maruti will save Rs 10,500 crore by staying away from Gujarat money that can be put to better use like investing in expanding marketing, developing new products and investing in export markets with strong potential. SMC, in fact, is expected to invest about Rs 18,500 crore in Gujarat where the twin facilities at full capacity will make up to 1.5 million cars a year more than the 1.2 million what Maruti makes at its two plants in Haryana today. The Gujarat plant is expected to start in 2017-18 fiscal.

Maruti Suzuki shares at the BSE closed 0.19% to Rs 2,755.15 on Friday.