New Delhi: The government’s decision to sell its remaining 10.27% stake in Maruti Udyog Ltd will earn it at least Rs2,609 crore at Rs879.20 a share, 22 February’s closing share price of India’s largest car maker on the Bombay Stock Exchange.
The government stands to earn a lot more if the Union Budget, to be presented on 28 February, suggests a favourable excise tax regime for the category of cars that have helped Maruti become the country’s top car maker.
Maruti, market leader in the compact or small-car segment, currently benefits from a clause in the previous Budget specifying a lower excise for six of the 10 models its sells.
As per that ruling, the government lowered excise tax to 16% from 24% for small cars, which it defined as vehicles that are less than four metres in length and additionally with an engine capacity that doesn’t exceed 1.2 litres in petrol and 1.5 litres in diesel.
The previous Budget announcement led to a fall in the prices of models such as Maruti’s WagonR and Hyundai’s Santro by as much as Rs15,000. It also boosted the share price of Maruti by nearly 18% to Rs9,28.45 in the following week, because it was the manufacturer with the most models of compact cars.
And, if the government reverts to an earlier 2002 definition of 3.8 metres for a small car, as indicated by a blueprint for the auto sector released by Prime Minister Manmohan Singh in January 2007, Maruti would gain the most, because none of its compact car models would be affected. By contrast, the compact-car excise benefits enjoyed by rivals such as General Motors would go.
“Given the fact that they (the government) have announced it (the sale) days before the Budget, there is a likelihood that something favourable might be coming for the passenger car industry,” said S. Ramnath, vice-president, equity research at SSKI Securities. “Maruti would be a beneficiary.” He has a buy rating on the stock.
In an advertisement in the country’s newspapers, the government has invited bids for its stake in Maruti from public sector banks, financial institutions and mutual funds.
The government will spend the money it earns from the sale on programmes such as universal primary education and developing India’s infrastructure. In the 15 years since economic reforms began, the government has raised Rs49,214 crore by selling stakes in various state-owned companies from bread maker Modern Food Industries Ltd to telecom company Videsh Sanchar Nigam Ltd.
This is the second time in two years that the government is selling a stake in its joint venture with Japan’s Suzuki Motor Co. In January 2006, the government raised Rs1,567 crore by selling a 8% stake in Maruti at a 12.3% premium to the average price of the preceding three months. In 2003, the government had netted Rs993 crore when it sold 27.5% of its stake to the public at Rs125 a share when Maruti was listed on the bourses.
The bids for Maruti have to be submitted by 9 March and the minimum bid has to be Rs 10 crore, according to the advertisement. The government has retained SBI Capital Markets Ltd and Kotak Mahindra Capital Co. Ltd as advisors for the stake sale.