NEW DELHI: India’s government will next month accept bids for its shares in Maruti Udyog Ltd., the nation’s biggest carmaker, a stake valued at as much as Rs26.7 billion.
Mutual funds, state-run financial institutions and banks must submit initial offers for the 10.27% stake in the New Delhi-based unit of Japan’s Suzuki Motor Corp. by 9 March, according to Department of Disinvestment notice issued today. The bids must be for a minimum Rs100 million.
Buyers will be willing to pay a premium for Maruti as it controls half the car market in India, Asia’s fourth-biggest automobile market, analyst Amit Kasat said. India is selling stakes in state-owned companies to benefit from an increase in their share prices and raise money to fund social welfare programs such as education and health.
“The response should be very good,” said Kasat, who has a “buy” rating for the stock at Mumbai-based brokerage Motilal Oswal Securities Ltd. “Maruti’s fundamentals are good.”
The value of the Maruti stake, amounting to 29.68 million shares, is based on the Rs900.6 closing price of the shares on the Mumbai stock exchange yesterday. The stock, which rose 46% in 2006, fell 2.9% this year. The shares gained as much as 1.3% to Rs912 today and traded at Rs900.95, up 0.04%, at 1:24 p.m. local time.
Maruti, 54.2% owned by Suzuki, makes 10 models including the WagonR and Swift hatchbacks at its factory in Gurgaon, adjoining capital New Delhi.
The government raised Rs15.67 billion in January last year selling an 8% stake in Maruti to local state-owned banks, insurance and financial companies. The latest stake will be sold through competitive bids by eligible institutions, according to the advertisement.
Communist allies of the government that are against selling shares in profitable state-owned businesses haven’t opposed stake sales in companies where the government has small holdings.
The Indian government said on 21 December SBI Capital Markets Ltd. and Kotak Mahindra Capital Company Ltd. have been retained as advisers for the stake sale. SBI Capital Markets and Kotak had advised the government in the previous program when the government sold the 8% stake.
The government will also have the discretion to sell only a part of the total shares on offer for sale, according to the advertisement.
India’s government, which started the company in February 1981 by subscribing to three shares of Maruti at Rs100 apiece, ceded control to its Japanese partner in 2003 after obtaining Rs10 billion as “control premium.”
Maruti was listed in the Indian stock exchanges in June 2003 after an initial public offering that was subscribed more than 10 times. The government reduced its stake in Maruti through the offering. It earned Rs9.93 billion by selling 72.243 million shares to the public at Rs125 apiece.
The government’s decision to exit Maruti came even as the company and its parent said they will jointly invest more than $2 billion (Rs8,850 crore) in the country to expand capacity, add new car models and construct a factory in the northern city of Manesar.
Economic growth, cheaper loans and rising disposable incomes is boosting vehicle sales in India, where only seven in 1,000 people own an automobile. This has led automakers such as General Motors Corp. and Hyundai Motor Co. to announce investments of more than $5 billion for building new factories or expanding existing capacities.
Maruti, which started making cars in 1983, aims to introduce five new models in the next five years to defend its market dominance.
Suzuki said on 25 January it plans to raise capacity in India to 710,000 units in 2007 from 630,000 last year. The company will further expand the capacity to 960,000 units a year by March 2010.
Volkswagen, Europe’s biggest automaker, is building new factories in India and will start selling cars under its own brand name from this year. Renault SA, France’s second-biggest automaker, formed an alliance with Mahindra & Mahindra Ltd., India’s biggest sport-utility vehicle maker, to sell cars in the country from the fiscal first half of this year.
India’s economy, Asia’s fourth-largest, expanded 9.1% in the six months ended Sept. 30, the fastest semi- annual pace in 15 years, according to the finance ministry.
Local car sales in India rose 24% in January, the 14th successive month of growth. Car sales in India touched a record 1.02 million units in 2006 as rising middle class incomes spurred demand in the world’s second-fastest growing major economy.
Annual car sales in India may triple to 3 million by 2015, according to the Society of Indian Automobile Manufacturers. The local automobile industry aims to reach a size of $145 billion by 2016 from $34 billion now, according to India’s Automotive Mission Plan for 2006-16 issued in September by the vehicle makers.