Proxy advisory firm Stakeholders Empowerment Services (SES) has questioned the timing of Maruti Suzuki India expansion and asked why the letter from institutional shareholders was not treated with the same respect as the communication from Suzuki Motor Corporation (SMC).
“One question that remains unanswered and is extremely important is how did the board come to a conclusion that the time is now ripe to expand?’” said the SES report, raising concern on the company's decision-making process. The report observed that chairman RC Bhargava, MSIL, had made a statement in an interview on December 25, stating that Maruti would set up manufacturing facilities in Gujarat only when the Indian automobile market came out of the red and started posting positive growth in sales.
“SES is unable to understand, what made Bhargava change his opinion barely a month after and that too when MSIL reported decline in sales. Answer that MSIL is not exposed to any risk is not maintainable as entire cost of Gujrat plant will get reflected in MSIL books. Shareholders expect an answer which will tell the factual position...What changed the structure from an earlier plan of in-house expansion to SMC subsidiary?’” asked SES.
SES said that institutional investors who wrote a letter to the company deserved a better treatment and the MSIL board, especially its independent directors, have to explain the issue to the shareholders. “When SMC writes a letter to the company, the board duly meets to discuss the letter and approve the proposal of the letter. On the other hand, when public shareholders write a letter, they are told to fend for themselves... Investors should keep the pressure on MSIL, and if their concerns are not addressed, the way forward is a complaint to SEBI and MCA,” said the report.
SES further said that the only way the deal could be fair to investors is if SMC confirms that in no case they will get a penny more than what they invest, failing which the proposed deal needs to be scrapped. “If SMC has no intention of taking any return on capital employed through subsidiary, in that case the most reassuring step/promise to the shareholder will be that SMC will not take out a penny more than its initial investment — no dividend, no sale at market price fair or unfair value but only at book value to MSIL,” said the report.