Maruti chief defends decision on Gujarat unit

Written by Press Trust of India | New Delhi | Updated: Mar 10 2014, 03:30am hrs
Maruti Suzuki has said the decision to transfer the proposed Gujarat plant to Suzuki was right and would not impact its manufacturing activities even as the auto major is facing criticism from shareholders.

Marutis latest assertion comes in the wake of seven major fund houses, who are shareholders, raising red flag over the planned transfer of Gujarat manufacturing plant to Japanese parent Suzuki Motor.

We are convinced that what we are doing is the right thing. We are also answering anybody who has any questions and doubts and we will continue to make efforts in that direction and thats all we can do, Maruti Suzuki India (MSI) chairman RC Bhargava said.

Besides fearing that such a move could make Maruti Suzuki merely a marketing firm, the fund houses, including ICICI Prudential MF, Reliance MF and UTI MF, also fear that royalty payments to the Japanese firm would see a substantial spurt.

We have always been a marketing company. We assemble, mark my words assemble 1.2 million cars at the moment. But remember in this assembly of 1.2 million cars, 70% of the manufacturing is done by the vendors and not by us. And in any case 1.5 million units will be continued to be produced in Gurgaon and Manesar (together), so its not if all our production is outsourced, Bhargava said.

On concerns raised by the fund houses that there could be a hike in royalty payment by Maruti to its Japanese parent, Bhargava said: They will not get any more royalty than what they are getting (now). The same system will continue.

As per the fund houses, the parent firm has R7,000 crore as royalty, 5.7% of sales, and in the next four years, another royalty payment worth R8,500 crore would be made.

According to them, with this pace and assuming a 15% growth in annual sales over the next 20 years, MSI would be paying a royalty of R41,900 crore.

The seven fund houses together hold 3.93% stake in MSI, while 6.93% stake is held by state-run LIC, which has also sought certain clarifications from the company on the Gujarat plant matter.

The decision to change the plant ownership was approved by the boards of Suzuki Motor and MSI, in which the Japanese firm held a 56.21% stake on December 31, 2013.

As per the arrangement, the parent company would invest in the plant through wholly-owned unit Suzuki Motor Gujarat, which will manufacture vehicles exclusively for MSI.