Says the proposed arm of its Japanese parent in Gujarat–Suzuki Motor Gujarat Pvt Ltd–will supply cars to it at a price lower than that it sells to dealers

NEW DELHI : In a bid to soothe investors’ nerves, Maruti Suzuki India Ltd has said the proposed arm of its Japanese parent in Gujarat–Suzuki Motor Gujarat Pvt Ltd–will supply cars to it at a price lower than that it sells to dealers.

“The cost of production of vehicles, produced by the subsidiary, would be calculated in an identical manner to that followed by Maruti Suzuki India Ltd in Haryana…and would not include return on investment and profits,” Maruti said in a statement late on Wednesday.

Maruti also clarified that the capital expenditure on the proposed Gujarat subsidiary would be met by the depreciation amount available with the arm, net surplus from the car pricing and by Suzuki Motor infusing fresh equity, to the extent necessary.

The capital expenditure needs of the arm would be determined jointly by Maruti and Suzuki Motor Gujarat Pvt Ltd, consistent with the production needs of Maruti from the Gujarat project, the company said. If the contract manufacturing agreement expires, and in case is not extended by mutual consent, the assets of the Gujarat subsidiary would be transferred to Maruti at a fair value to be determined by independent valuation.

Maruti Suzuki’s decision to allow its Japanese promoter and owner of 56.21% stake–Suzuki Motors to manufacture cars at the new plant in Mehsana, Gujarat and enter into sourcing agreement for buying the cars has reportedly not gone down well with some institutional investors, who believe such an arrangement would eventually turn Maruti into a distribution company.

These investors are reported to have raised concerns asking Maruti Suzuki’s board to review the decision as it will lead to all incremental volumes getting outsourced to the parent’s subsidiary and the listed entity evolving into just a trading company.

In January, Maruti Suzuki had announced that Suzuki Motor Corp would set up a wholly-owned subsidiary — Suzuki Motor Gujarat Pvt Ltd–which will look after all operations of the upcoming 30-bln-rupee Mehsana manufacturing plant in Gujarat. Maruti Suzuki will handle sales.

Maruti Suzuki had acquired 1,190 acres of land in Mehsana district in 2011 for its expansion plans that will now be transferred to the parent Japanese company which will pay an annual rental fee.

On Wednesday, shares of Maruti Suzuki ended 0.8% down at 1,664.05 rupees on the National Stock

Exchange.         -Cogencis

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