Expect minority shareholder voting on Gujarat plant in Oct: Maruti

Tags: Cars
The country's largest carmaker Maruti Suzuki India expects voting by minority shareholders to happen sometime in October for approval of its plans to let parent Suzuki Motor Corp own a proposed new plant in Gujarat.

"We haven't yet fixed a date. It could be in October probably but not certain yet," Maruti Suzuki India (MSI) Chairman R C Bhargava told reporters here.

Speaking on the sidelines of a lecture in memory of the company's executive Awanish Dev, who was killed in worker violence at the company's plant in Manesar in 2012, Bhargava said MSI's move on the Gujarat plant would be beneficial to its shareholders.

"As far as Gujarat (facility) structure is concerned, it is recognised that the structure we have envisaged is beneficial to Maruti shareholders... The major issue which they raised (institutional investors) are regrading why higher dividends are paid, why is royalty audited. On structure, there are no real issues now," he said.

Asked how confident the management was to get minority shareholder approval, MSI Managing Director and CEO Kenichi Ayukawa said, "...Because of the way we communicated our sincerity to the investors, we did not get any negative response. We are expecting to get better results."

In March, under pressure from institutional investors, Maruti decided to seek the approval of minority shareholders after tweaking some of the earlier proposals for the Gujarat plant, which parent Suzuki Motor Corp (SMC) had decided to take over with an investment $488 million to build the Gujarat plant, that Maruti had earlier proposed to set up.

MSI had conducted a roadshow to explain to global and domestic investors its move over the Gujarat plant in June.

Revising earlier proposals, MSI stated that investments in the Gujarat plant would be funded by SMC via a wholly owned subsidiary through depreciation and equity brought in by the parent without a 'mark-up' on cost of production, as was proposed before.

Also, in case the contract manufacturing agreement between them is terminated, the facilities of the Gujarat subsidiary would be transferred to MSI at book value and not at fair value, as was envisaged earlier.

When asked about MSI's plans of creating 3 million capacity and selling it, Bhargava declined to fix a timeline.

"The target of selling 3 million cars cannot be predicted today...The industry size must be at 6.5-7 million annually for this...So it depends on how economy grows," he said.

Commenting on the market conditions and on any possibility of price hikes, he said: "At the moment discounts are at all time high in the industry so in this scenario there cannot be price hikes."

Total capacity is in the excess of around 40% of demand. There is excess capacity therefore huge discounting is happening, he added.

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