Maruti chairman R.C. Bhargava says the company will stand by its decision
Mumbai: Minority investors in Maruti Suzuki India Ltd, India’s biggest carmaker by volume, sought the scrapping of parent Suzuki Motor Corp.’s plan to build a fully- owned factory in the state of Gujarat.
In January, Suzuki Motor said it will spend ¥50 billion ($484 million) on the factory in western India. The facility, to start production in 2017, will have an initial annual capacity of 100,000 cars and will supply all its output to Maruti, the Hamamatsu, Japan-based automaker said at the time. The investors in the letter said that the plan would convert Maruti into a shell company over time.
This clearly is not in the best interests of MSIL and its shareholders and is in fact significantly detrimental to them, they wrote in the letter dated 5 March, a copy of which was obtained by Bloomberg News. We wish to remind you of your fiduciary duty and urge you to carry out the Gujarat project under the ownership of MSIL.
The production of cars by a Suzuki-owned subsidiary would lead to lower earnings than from cars manufactured by Maruti directly, Ashvin Shetty and Ritu Modi, analysts at Ambit Capital, wrote in a research note on 28 February.
The cost of production of vehicles at the Suzuki Gujarat factory would be calculated in an identical manner to those made by Maruti’s existing plants, Maruti said in a statement on 26 February.
Suzuki’s Gujarat unit won’t make any losses nor accumulate any cash surpluses, according to the statement. Maruti will profit from the sale of the cars to dealers and will get a higher return on capital than if it had been the Indian automaker’s investment, Bhargava said 28 January.
This raises corporate governance concerns at Maruti, said Paras Bothra, vice president for equity research with Ashika Stock Broking Ltd in Mumbai. This is the first time I recall all the major fund managers raising their voice unitedly.
Maruti shares fell 2.6% to Rs1,754.15 in Mumbai on Tuesday, compared with a 0.5% loss in the benchmark S&P BSE Sensex. BLOOMBERG
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