Maruti Suzuki: Staying away from Gujarat to save Rs 10,500 crore

Jun 07 2014, 08:51 IST
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Suzuki Motor is expected to invest R18,500 crore in its Gujarat plant through a wholly-owned subsidiary for a production capacity of 1.5 mn per year. Suzuki Motor is expected to invest R18,500 crore in its Gujarat plant through a wholly-owned subsidiary for a production capacity of 1.5 mn per year.
SummarySuzuki is likely to invest Rs 18.5K cr in its Gujarat plant for car production capacity of 1.5 mm

started when on January 28 MSIL said its board had decided the plant would be owned and built by its parent firm SMC with an investment of around R3,000 crore.

SMC would invest in the plant through its subsidiary SMG. The plant, which would be the first fully-owned factory of the Japanese giant, will have an initial capacity of 250,000 cars a year, all of which will be supplied to MSIL.

The Street was opposed to the structure despite changes by the management on February 26. While earlier the Gujarat unit was to remain an SMC subsidiary, the company later said if the contract manufacturing agreement were to expire, and in case it was not extended by mutual consent, the “assets would be transferred to MSIL at a fair value to be determined by independent valuation”.

It also said that the capex needs of the Gujarat subsidiary would be met by the depreciation of the subsidiary, an amount generated as net surplus from the car pricing and equity infusion from SMC, to the extent necessary. Upset, a clutch of 16 institutional investors wrote a strongly worded letter to the company questioning the opacity in the decision regarding the subsidiary and asked the MSIL management to quash it as it would turn the company into "shell" entity. Institutional investors together hold almost 14% in MSIL, while the promoters have a 56.21% shareholding.

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