The country's largest car maker, Maruti Suzuki India, expects royalty paid to parent Suzuki Motor Corporation to come down starting with its upcoming compact SUV as its engineers enhance their role in the joint development of future products.
The company, which is investing Rs 2,000 crore on a research and development facility, including a test track, at Rohtak in Haryana, will enter the SUV and MUV (multi-utility vehicle) segment "with full bandwidth" in the next few months.
"In any situation where we have joint development for any product by using the engineers, who work on development of the products in India and Japan, there will be an equal apportionment based on the efforts and technology leveraged by either side on calculating royalty," Maruti Suzuki India (MSI) chief financial officer Ajay Seth told analysts.
He said core technology such as powertrain and basic platform would continue to flow out of Japan, but the royalty paid by MSI to Suzuki Motor Corp (SMC) would be reduced accordingly
"if there is any design or any other work, that we do here".
"You will see this happening with the first launch of our compact SUV, as and when it comes, because that is the first case of joint development and therefore when that comes in you will see that rate of royalty will be lower then the normal rate of quality based on the efforts which are being jointly put," Seth said.
Asked if more and more products would enjoy lower royalty in future, he said: "As we mature and as we do
more joint developments, it will happen."
In the first quarter ended June 30, 2014 MSI had paid royalty of Rs 689 crore, which was 6.2% of net sales.