Maruti's Gujarat plant deal adds to operational complexity

Tags: News
Maruti Suzuki India's recent update on the Gujarat plant, proposed to be implemented by its Japanese parent Suzuki Motor Corp, is "razzle dazzle" and the transaction adds to the complexity of the operating structure, according to proxy advisory firm IiAS.

The proxy advisory firm's latest comments come within days of Maruti saying that it expects to save about Rs 10,500 crore in the first 15 years by not investing in the Gujarat facility.

Institutional Investor Advisory Services (IiAS) today said the recent update, details of the term sheet of the Contract Manufacturing Agreement (CMA) and the Lease Deed, and the road shows Maruti plans to conduct, are a "mere razzle dazzle".

Noting that the transaction adds to complexity of the operating structure, the proxy firm said, "the balance of power, already in favour of Suzuki, will now tilt completely towards them and Maruti will have lost control over its own destiny".

Last week, Maruti Suzuki India -- which agreed to let parent Suzuki Motor Corp own an upcoming plant in Gujarat -- had said it expects to save about Rs 10,500 crore in the first 15 years by not investing in the facility.

With regard to the contentious Gujarat plant, the company had said it proposes to enter into a CMA with Suzuki Motor Gujarat (SMG), a fully owned subsidiary of Suzuki Motor Corp (SMC).

"The CMA would initially be for a period of 15 years and shall be automatically extended for a further period of 15 years, unless the parties mutually agree to terminate it; and after the expiry of 30 years, MSIL and SMG may mutually agree to extend the period of the CMA," the company had said in an investor presentation filed with the BSE.

Meanwhile, IiAS observed that Maruti's term sheet on the Gujarat plant deal distracts investors from the fundamental question – "why should Maruti not invest in the Gujarat plant?".

Suzuki Motor Company, Japan (Suzuki), which owns 56 per cent of Maruti and 100 per cent of SMG, seems to be shifting the rationale for the deal, the report said.

"The announcement says that with this deal, Maruti's importance to Suzuki will increase. That would be true if the Gujarat plant was housed within Maruti – in this structure, India's importance as a market increases for Suzuki, but not Maruti's specifically.

"Moreover, Maruti is already important to Suzuki: it accounts for over 50 per cent of Suzuki's overseas automobile sales and 30 per cent of global volumes (including Japan)," it added.

Post new comment

E-mail ID will not be published
CAPTCHA
This question is for testing whether you are a human visitor and to prevent automated spam submissions.
Image CAPTCHA
Copy the characters (respecting upper/lower case) from the image.

EDITORIAL OF THE DAY

  • Sebi needs to plug the one-day window for price manipulation ahead of OFS

    The Securities and Exchange Board of India (Sebi) is reportedly planning to change the rules governing the announcement of details on offer for sale (

FC NEWSLETTER

Stay informed on our latest news!

INTERVIEWS

Sarthak Raychaudhuri

vice-president, HR, Asia South Whirlpool of India

GV Nageswara Rao

MD & CEO, IDBI Federal Life

Timothy Moe

Goldman Sachs

TODAY'S COLUMNS

Urs Schoettli

China looks to India for balance

Almost a third of the total world population lives in ...

Zehra Naqvi

Love and its stories

People must have bread. They can live without stories. No, Hameeda, ...

Dharmendra Khandal

Tiger in urban landscape

Ranthambhore is in a no-win situation. Just a few days ...

INTERVIEWS

William D. Green

Chairman & CEO, Accenture