Mumbai: Japanese firm Sumitomo Corp. bolstered its dominant stake in Swaraj Mazda Ltd, betting that the Chandigarh-based manufacturer of light commercial vehicles will be able to regain market share, which has dwindled to around 3%.
Graphic: Ahmed Raza Khan / Mint
Sumitomo acquired a 1.44% stake to boost its holding to 54.96% following a rights issue that raised Rs80 crore. Some shareholders had renounced their rights in the offer. Sumitomo told the National Stock Exchange on 12 April it had acquired an additional 2.3 million shares, increasing its tally to almost eight million.
Analysts said the move will help the Indian firm increase its market share in the face of growing competition, although this has coincided with a decline in Swaraj Mazda’s shares.
The rights issue, in which new stock is offered to existing shareholders in proportion to the shares they hold, took place in March. The proceeds will be used to expand facilities in Punjab and pay off debt.
Gopal Bansal, vice-president (finance) and company secretary at Swaraj Mazda, declined to comment. The Japanese firm did not reply to an email sent by Mint.
The move comes after reports that Sumitomo was considering the sale of its stake in Swaraj Mazda to Indian auto makers such as Tata Motors Ltd and Mahindra and Mahindra Ltd.
The firm had denied any such plans in reply to an email sent by Mint earlier. A Sumitomo spokesperson had said the company was thinking of raising its stake before expanding the product portfolio in India and entering the medium- and heavy-duty vehicle market in 2011-12.
Swaraj Mazda’s shares fell 1.72% to Rs237.30 a share, while the benchmark Bombay Stock Exchange Sensitive Index declined by 0.17% to 17,821.96 points.
With companies such as Mahindra and Mahindra entering the medium- and heavy-duty vehicle market, it’s crucial for Swaraj Mazda to steadily increase its market share, said Mahantesh Sabarad, analyst at Fortune Equity Brokers (India) Ltd. “Having a well-entrenched promoter always helps.”
The fresh funds will allow the firm to upgrade its models to meet new norms for vehicular emission and expand capacity, Sabarad added.
Led by 43% growth in the light commercial vehicle segment, trucks and buses posted sales growth of 38% in the year ended 31 March to 531,395 units, according to industry lobby Society of Indian Automobile Manufacturers.
Established in 1985 as a joint venture involving Sumitomo, Punjab Tractors Ltd and Mazda Motors Ltd, Swaraj Mazda has lately found itself on the back foot with the entry of new competitors and has been gearing up to launch modern, fuel-efficient models.
In January 2009, Mahindra and Mahindra sold its 14% stake in Swaraj Mazda to Sumitomo for Rs40 crore, raising the Japanese firm’s stake to 53.52% from 39.5%. Mutual funds, foreign institutional investors and the public hold the remaining equity.
The light commercial vehicles space is dominated by Tata Motors, which sells one of two such vehicles sold in the country.