New Delhi: Maruti Suzuki India on Monday announced that it will acquire Suzuki Motor Gujarat – which contract-manufactures vehicles exclusively for Maruti Suzuki India – from Japanese giant Suzuki Motor Corporation (SMC) to tackle growing “complexities of management” as the company looks to double its production to 4 million vehicles in the next seven years.
While the mode of acquisition and the consideration to be paid to SMC will be decided in a subsequent board meeting, the last book value of the plant was estimated to be over Rs 12,000 crore.
The company said in a statement that with the growth of the Indian car market and export potential, it would need to increase its production capacity to about 4 million cars per annum by 2030-31, almost double from current levels.
This would happen over several locations, some of which are known and some being studied, it said, adding that on the other hand, given the carbon neutrality requirements, several powertrain technologies like EVs, Hybrids, CNG, Ethanol etc. would co-exist for a reasonably long period of time.
“Managing this scale and complexity of production with multiple powertrains, under different managements, would pose several challenges,” the country’s largest car-maker said.
Hence, the board approved exercising the option to acquire 100% shares of SMG from SMC.
“The Board of Directors considered this and decided that for the purpose of efficiency in production and supply chain, it is best to bring all production related activities under MSIL. Accordingly, the Board approved termination of the contract manufacturing agreement and exercising the option to acquire the shares of Suzuki Motor Gujarat Pvt Ltd (SMG) from Suzuki Motor Corporation (SMC) subject to all legal and regulatory compliances including minority shareholders’ approval,” the statement read.
SMG was incorporated on 31 March, 2014, and as per the Contract Manufacturing Agreement (CMA) between Maruti Suzuki India and SMG, the latter sells its production exclusively to Maruti Suzuki India. Presently, SMC holds 100% equity capital of SMG.
As per information shared with the stock exchange, the turnover of SMG was Rs 31,852.5 crore in FY 2022-23, Rs 24,440.4 crore in FY 2021-22 and Rs 15,850 crore in FY 2020-21.
The acquisition of 100% equity capital by Maruti Suzuki India Limited (MSIL) from SMC is a related party transaction and shall be done according to the prevalent law and regulations.
Speaking to reporters during a video interaction, the company’s chairman R.C. Bhargava said while the agreement of SMG contract-manufacturing for Maruti Suzuki worked perfectly till now, the situation has changed from what it was in 2014 given the growth of the Indian car market.
“It would be better if we can ensure that all production and production-related activities are brought under a single management… The result will not affect the production and profits as far as customers and shareholders are concerned,” Mr Bhargava said.
The mode of acquisition, including consideration to be paid to SMC, will be decided in a subsequent board meeting. However, Bhargava said the CMA provides for Maruti Suzuki to acquire SMG at book value from SMC. He added that the last book value estimate of SMG was over Rs 12,000 crore.
Currently, Suzuki Motor Corporation, which holds a majority stake in Maruti Suzuki India, globally produces about 3.2 million vehicles, of which about 60% or 1.9 million vehicles, comes from India. SMG has a production capacity of 0.75 million.
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