Maruti to let Suzuki own Gujarat plant to save about Rs 10,500 crores
Maruti Suzuki India Limited upon letting its parent company Suzuki Motor Corporation set-up the upcoming Gujarat plant on its own, would save about Rs. 10,500 crores during the span of first CMA (Conract Manufacturing Agreement). This benefit would gather as a result of not investing in the plant and letting Suzuki do the investment and management.
So, Maruti Suzuki India Limited is set to enter into the CMA with Suzuki Motor Gujarat (SMG), which would last for 15 years. It can be extended to another 15 years if the parties do not wish to cease the contract, and the same case follows after the CMA expires again.
Through the span of CMA, Maruti Suzuki India Limited would probably be buying cars from Suzuki Motor Corporation owned Suzuki Motor Gujarat on a pay per car basis, so that MSIL need not have to make heavy investment for the plant and SMC need not worry about marketing and distribution. Since Maruti is the largest car seller in India, both parties would be enjoying a win-win situation.
Savings of about Rs. 10,500 crores is estimated by MSIL through assumed post tax return of 8.5% per year over the first 15 year span of CMA, for the money that is not spent on Gujarat plant. This savings would continue to grow as the contract is extended.
But institutional investors have been protesting MSIL’s move of letting SMC take over the Gujarat plant project, to protect the interests of minority shareholders. Maruti is attempting to convince its domestic and global investors through a roadshow starting this month. After the 2 month long roadshow, shareholders will be asked to vote on the investment plan between MSIL and SMC. The plant would have an initial capacity of 1,00,000 units per year as planned by SMC, who proposed to invest $488 million for the Gujarat plant.