Maruti to pay Suzuki in rupees for future models

Tags: News
Maruti Suzuki India, the country’s largest carmaker by sales, said on Thursday that it would make royalty payments due to parent Suzuki Motor Corp for all future models in rupees.

The company would stop paying the royalty to its parent company Suzuki in yen so that the company was not exposed to variations in the exchange rate, Maruti Suzuki India chairman RC Bhargava told shareholders at the annual general meeting in the capital city on Thursday.

The company pays Suzuki, which has 56 per cent stake in Maruti, royalty for use of its technical knowhow and brandname.

According to the company’s most recent annual report, it paid Suzuki Rs 2,486 crore in royalty for the year to March 2014. It had paid Rs 2,453 crore in royalty the previous year.

Auto analysts said the maker of popular compact cars such as Swift, Estilo, Celerio, Ritze and Dzire range paid 6 per cent of net sales as royalty to Suzuki. In the first quarter in June 30, 2014, this amounted to royalty of

Rs 689 crore.

“It is a positive development as it basically eliminates the volatile foreign currency risk,” Abdul Majeed, senior auto expert and partner at Price Waterhouse, told Financial Chronicle. He said forex risk was not good for business as it impacted profitability of the company.

“The move would reduce the work related to various measures to control forex measures to a large extent,” Mitul Shah, senior auto analyst at Karvy Stock Broking, told Financial Chronicle. It was a positive move for the company in the long-term perspective, he said.

Bhargava said with the company enhancing its research and development capabilities and playing a greater role in joint product development with Suzuki, the royalty payout will also decrease.

"More and more R&D work will be done in India and royalty calculation will be based on work done here and our expenditures on R&D will be rewarded in the form of reduced royalty," he said.

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