With all approvals in place, Maruti Suzuki India (MSIL) will ask minority shareholders to vote on a proposal to allow its parent Suzuki Motor Corporation (SMC) to invest in and own a new manufacturing facility in Gujarat, chairman RC Bhargava said at a press conference on Tuesday. “The final version of the contract manufacturing agreement with SMC has been approved by the board and all the blanks filled in. Voting will commence on November 16 and the results will be announced on December 17,” Bhargava said.
MSIL has already held roadshows to reach out to investors in Mumbai and Singapore and more will be held in Hong Kong and the UK in the first week of November, the chairman said. The Gujarat government has agreed to transfer the ownership of the plant from MSIL to SMC.
The proposal will need the approval of minority shareholders since it is a related-party transaction, and would be deemed approved if it is passed by 50% shareholders, according to the Companies Act. Bhargava said he was confident it would go through. “It is a very good deal for them. I don’t expect shareholders to let pass this bonanza,” he said.
Minority shareholders including mutual funds such as HDFC AMC and Franklin Templeton Investment Management had opposed MSIL’s proposal, announced on January 28, 2014, to house the new plant in SMC, fearing MSIL would lose out due to a lack of transparency in the pricing of the product.
MSIL said initially the price of the vehicles to MSIL would include only the cost of production actually incurred by SMC’s subsidiary plus just adequate cash (net of tax) to cover incremental capital expenditure requirements. “The return on this investment for SMC would be realised only through the growth and expansion of MSIL’s business,” the statement from MSIL said. However, it later clarified on February 27 that future capex needs would be met by the depreciation amount charged at the Suzuki Gujarat (SG) level, the net surplus generated from car pricing and fresh equity infusion from Suzuki Japan to the extent necessary. The press release also stated that the mark-up on cars sold by SG to MSIL was to be capped at the level of MSIL’s mark-up on cars sold via the 100%-owned facilities.
MSIL said this month the factory will manufacture exclusively for the Indian unit for as long as 30 years, once the deal is approved by minority shareholders and receives regulatory approvals. The factory may be ready before the scheduled start date of May 2017, Bhargava said on Tuesday. “In 2016 Gurgaon and Manesar will be more than fully utilised, so we will need the capacity from Gujarat to meet demand,” he said. The plant, SMC’s first fully-owned factory in India, is being planned with an initial capacity of 2,50,000 units a year, all of which will be supplied to Maruti, and a final capacity of 7,50,000, half of Maruti’s current installed capacity.
In 2014-15, Maruti Suzuki produced 10,97,643 units at its plants in Gurgaon and Manesar combined. With the recent launch of its premium hatchback Baleno, Maruti has also planned exporting the model to over 100 countries. The exports, which will begin early 2016, are being viewed in the range of 50,000 units.
Strong sales drive net up 42%
The country’s biggest carmaker reported a net profit of Rs 1,225.6 crore for the three months to September, a sharp jump of 42.1% year-on-year, but marginally missing Bloomberg consensus estimates of Rs 1,258 crore. Bhargava said higher volumes, cost reduction efforts, lower sales promotion expenses and a favourable foreign exchange had helped improve the company’s performance. One reason for the lower-than-expected profit was the high tax outgo, which jumped 126% y-o-y to Rs 494 crore. The MSIL scrip closed at Rs 4,494.60, up 2.44% from the previous close, on the BSE. The stock is the second-best performer this year among the 30-company S&P BSE Sensex and has surged 35%, compared with the index’s 0.9% drop.
Net sales during the period stood at Rs 13,574.8 crore, a growth of 13.2% y-o-y, with volumes up 9.8% and realisations rising 3.2%. Lower input costs helped drive up operating profit margins to 16.3% up 390 basis points y-o-y although they were sequentially lower as the company offered higher discounts of Rs 19,500 per model on average compared with Rs 16,000 in the preceding quarter.
MSIL expects conditions in the home market to improve and sales to pick up in the September-December quarter, Bhargava said. “Generally, December sales are different but there have been a lot of purchases in the last couple of years,” he said adding MSIL was sticking to its guidance for double digit growth this year.
