Japanese automaker Suzuki will complete the pending manufacturing plant project of Indian public listed arm Maruti Suzuki which was stalled two years ago.
India’s largest passenger car manufacturer by sales Maruti Suzuki Ltd said its board has approved a proposal wherein its Japanese parent through its separate wholly owned arm will complete the project to manufacture vehicles in Gujarat. The Suzuki subsidiary would be a manufacturing company with Maruti as its only customer.
The news sent shares of Maruti Suzuki, which is 56.2 per cent owned by Suzuki Motor, down over 9.5 per cent on the stock exchanges soon after the news, despite the company reporting a strong 36 per cent growth in net profit to Rs 681 crore for the quarter ended December 31, 2013 over the year ago period.
Some analyts including corporate governance advisory organisation InGovern has asked shareholders to oppose the move on various counts of conflict of interest.
Maruti Suzuki would enter into a contract with Suzuki’s separate arm under which all production in the proposed plant would be solely for Maruti. The company had acquired 1,190 acres in Mehsana district in Gujarat around two years ago but the project was stalled due to market conditions as auto demand slowed down.
Maruti Suzuki would now provide the land to the Suzuki subsidiary on lease to construct the production and related facilities and also all required assistance to the company to implement the project on arms’ length basis.
The Indian vehicle maker will only pay the cost price for units manufactured in this plant and is expected to be benefited financially from the interest earnings resulting from not investing its money in this project, it added.
Meanwhile, Maruti Suzuki chairman R C Bhargava said at a press conference that the proposed expansion in Gujarat will be completely funded by Suzuki subsidiary and overall investment to be incurred would be around Rs 3,000 crore.