In January 2014, Maruti Suzuki India Ltd. (MSIL) announced a proposal according to which parent company Suzuki of Japan would set up a fully owned subsidiary to establish a manufacturing plant in Gujarat. The project would involve an initial capex of INR 3,000 crores from the parent. Subsequent expansion would be funded by incremental capex cost or mark-up cost over production cost that will be borne by MSIL, and depreciation and fresh equity by Suzuki.
This proposal was met with widespread opposition since several investors believed that such a move would eventually devalue MSIL into merely a shell company with primary manufacturing power going to Suzuki. So the proposal was tweaked in such a way that the mark-up over production cost is eliminated and instead, the complete capex for the Gujarat plant would be sourced by Suzuki through depreciation and fresh equity.
Maruti Suzuki proposed to seek approval from its minority stake holders for the revised agreement as a mark of good corporate governance. The company has just announced the results of the voting. With 89.75% votes in favor, the minority stake holders of MSIL have clearly given a green signal for Suzuki Motor Corporation to set up its wholly owned manufacturing subsidiary on land leased from MSIL. It’s to be noted that over 50% of minority stake holders abstained from voting.
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The new subsidiary named Suzuki Motor Gujarat will proceed with the construction of the manufacturing plant which is set to have an installed production capacity of 750,000 units per annum eventually. The cars made here will be sold to MSIL at production costs. MSIL’s existing facilities in Manesar and Gurgaon have a combined production capacity of 1.5 million units per annum.