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Old 20th October 2015, 23:29   #1
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Default Maruti's royalty payouts to Suzuki increase over 6 times in 15 years

This definitely sounds like an interesting topic. I am of the view that Suzuki is entitled to these royalties, but at the same time most of their revenue also comes from India. Would like to hear from fellow bhpians.

http://m.economictimes.com/industry/...w/49469544.cms
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Old 20th October 2015, 23:41   #2
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Default re: Maruti's royalty payouts to Suzuki increase over 6 times in 15 years

In simple words it's a Scam. This way they show these royalties as expanse in balance sheet. Therefore less tax income for Indian government. Also remember that Maruti Suzuki India Ltd is a public limited company, so this is a direct money transfer from Indian shareholders and Indian government to Suzuki Japan.
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Old 20th October 2015, 23:50   #3
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Default re: Maruti's royalty payouts to Suzuki increase over 6 times in 15 years

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Originally Posted by Vishal.R View Post
In simple words it's a Scam. This way they show these royalties as expanse in balance sheet. Therefore less tax income for Indian government. Also remember that Maruti Suzuki India Ltd is a public limited company, so this is a direct money transfer from Indian shareholders and Indian government to Suzuki Japan.
You hit the nail on the head, all companies are here to earn money and i don't think any manufacturer is an exception. If not for Suzuki we would have had to live with our faithful Ambys and Fiats for a few more years. So they are milking us still for their 800.
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Old 21st October 2015, 02:10   #4
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Default re: Maruti's royalty payouts to Suzuki increase over 6 times in 15 years

Well let's just say that they took a risk back in the 80's and it is paying dividends now. Isn't that royalty is all about? You record a song once you get paid royalty, you write a book once you get paid a royalty. In this case, almost all models of Maruti are still Suzuki models, launched outside first. Let us buy out the royalty, maintain that quality for next 20 years and maybe then we can talk about who is "milking" who.
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Old 21st October 2015, 13:29   #5
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Default re: Maruti's royalty payouts to Suzuki increase over 6 times in 15 years

Quote:
Originally Posted by Vishal.R View Post
In simple words it's a Scam. This way they show these royalties as expanse in balance sheet. Therefore less tax income for Indian government. Also remember that Maruti Suzuki India Ltd is a public limited company, so this is a direct money transfer from Indian shareholders and Indian government to Suzuki Japan.
Why is it a scam?
An entity (whether business or individual) has all the rights to use all the legal means to reduce the tax payout to the Govt.
Or are you advocating that entities should pay out tax to the maximum capacities possible? In that case how does one determine the maximum capacity?

I am sure then in that case you would not be claiming any Section 80 (various sub sections). Correct?

Coming back to Maruti, I am sure these guys hold regular AGMs and all their expenses and liabilities scrutinized and justified by all the stakeholders.

Last edited by alpha1 : 21st October 2015 at 13:31.
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Old 21st October 2015, 13:44   #6
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Why is it a scam? Did Maruti develop all the models by itself? What about all the years and years of R&D of Suzuki that led them to creating the cars and engines they sell today? What models will Maruti be left with if Suzuki Japan withdraws all its models and engines?

It is Suzuki that did all the research and created the car platforms and engines. It is fair that they get royalty for all the years of research. How many products can Maruti-Suzuki sell that don't have content from Suzuki Motor Corp?

By the way, Suzuki Motor Corp holds 56.21%, which is well over 50% of total shareholding of Maruti Suzuki. http://www.marutisuzuki.com/shareholding-pattern.aspx

Last edited by Gannu_1 : 21st October 2015 at 14:43. Reason: Back to back posts merged.
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Old 21st October 2015, 15:05   #7
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Default Re: Maruti's royalty payouts to Suzuki increase over 6 times in 15 years

Quote:
Originally Posted by imove View Post
Well let's just say that they took a risk back in the 80's and it is paying dividends now.
I don't think anyone has a problem with the royalty paid. Question is, why has the royalty increased 6 times when car prices haven't (in the same proportion)? If the numbers are true, that's an exorbitant fee to be paid.

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Originally Posted by alpha1 View Post
Why is it a scam?
Maruti is now a publicly listed company. It is answerable to its investors. Suzuki is NOT the only owner of Maruti.

Plus, as 56% owner of Maruti, Suzuki anyway takes a lion's share of the profits. Keeping that in mind, I can completely understand why other investors see this as a rip-off. If I owned shares in Maruti, I would too.
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Old 21st October 2015, 18:39   #8
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Default Re: Maruti's royalty payouts to Suzuki increase over 6 times in 15 years

With due regards, I feel that this country has laws to protect the minority shareholders too, not just the religious/linguistic minorities (just an inculpable joke, before someone red-flags it).
If a shareholder feels aggrieved, he/she can always raise it as an issue.

The point is that the cars that Maruti Suzuki sell in India are developed by Suzuki R&D department in Japan or elsewhere in the world, and it is a standard practice that the R&D costs are recovered through some means. It could be either through royalty, or it could be through ToT. I do not see a reason for Suzuki as a 56% odd shareholder to bear the 100% cost of R&D. The others need to share too. If they don't like, they can always question the MD (or whoever is responsible in Maruti). But Suzuki Japan and MSIL are legally two different companies and there needs to be a legal arrangement to address the costs borne by Suzuki Japan for MSIL.

Having said that, I sincerely hope that someday Maruti will be owned by an Indian company and we'll kick Suzuki's @$$ (read it as @ = asian, $$ = money) and make it what it is - Dil Se Indian!!

Last edited by IndiFuture : 21st October 2015 at 18:45.
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Old 21st October 2015, 20:26   #9
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Default Re: Maruti's royalty payouts to Suzuki increase over 6 times in 15 years

I am no MBA. But, 15 years back in 2000, The models on sale were just the 800, Omni and the odd Gypsy(15 years old) and Zen and Esteem (7 years old). and the royalties if any were for these. But close to 2000 the fresh launches from maruti was starting - Alto, Baleno, Wagon R, Versa, later the Estilo, Then Baleno gave way to Sx4, Esteem to Swift and Swift Dzire, then the Ritz, A Star, the new Wagon R, and more importantly the engine changed from the old G and F series to the newer K series. A lot of changes in technology compared to the preceding 15 years and more importantly being refreshed with technology from Suzuki. Now in the last five years we have the new Swift, Ertiga, Celerio, Ciaz and so on.

Will that explain the drastic rise in royalties?

I have not considered the Alto 800, Alto K10(old and new) which were mostly by Maruti, Vitara and Kisashi which were imported).

Last edited by Ramon : 21st October 2015 at 20:35.
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Old 22nd October 2015, 14:22   #10
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Default Re: Maruti's royalty payouts to Suzuki increase over 6 times in 15 years

Quote:
Originally Posted by imove View Post
Well let's just say that they took a risk back in the 80's and it is paying dividends now
I wouldn't give them that much credit for talking a risk. They got great advantages from a monopoly point of view. There was no other competition worth it's name, and they had a free run for atleast 15 years. Other manufacturers were not allowed in as freely, till the late 90s, so Maruti got an unjustifiable good head start.

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Why is it a scam?

By the way, Suzuki Motor Corp holds 56.21%, which is well over 50% of total shareholding of Maruti Suzuki. http://www.marutisuzuki.com/shareholding-pattern.aspx
So what? There is something called "rights of minority shareholders", where such shareholders can approach the court for unfair decisions. Please google for how Cadbury minority shareholders went to court and won, on the buyback price.

However, it is a different story that most of the minority shareholders in India are either misinformed, lethargic, or powerless to take on the might of these companies.
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Old 22nd October 2015, 14:43   #11
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Default Re: Maruti's royalty payouts to Suzuki increase over 6 times in 15 years

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Originally Posted by PearlJam View Post
So what? There is something called "rights of minority shareholders", where such shareholders can approach the court for unfair decisions. Please google for how Cadbury minority shareholders went to court and won, on the buyback price.

However, it is a different story that most of the minority shareholders in India are either misinformed, lethargic, or powerless to take on the might of these companies.
That is true, but what I meant is that it will hurt their own interest as well, considering the market cap of Maruti Suzuki is higher than the parent company.
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Old 22nd October 2015, 15:30   #12
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Default Re: Maruti's royalty payouts to Suzuki increase over 6 times in 15 years

The point to note is Maruti Suzukiís operating margin (even after royalty payouts) is at over 12 per cent, almost twice that of Suzukiís which is below 7 per cent for its automobile segment. Hence, IIAS concludes that Maruti Maruti Suzukiís margins emanate from its own local efforts of cost control, value engineering, and indigenisation, and not from a dramatic improvement in technology transfer from its Japanese parent, so yes, the royalty payment is rip-off.
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Old 22nd October 2015, 15:39   #13
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Default Re: Maruti's royalty payouts to Suzuki increase over 6 times in 15 years

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Originally Posted by GTO View Post
I don't think anyone has a problem with the royalty paid. Question is, why has the royalty increased 6 times when car prices haven't (in the same proportion)? If the numbers are true, that's an exorbitant fee to be paid.

Maruti is now a publicly listed company. It is answerable to its investors. Suzuki is NOT the only owner of Maruti.

Plus, as 56% owner of Maruti, Suzuki anyway takes a lion's share of the profits. Keeping that in mind, I can completely understand why other investors see this as a rip-off. If I owned shares in Maruti, I would too.
What would be more interesting is if someone can get a hold of the increase in the percentage of royalties paid v/s net profit/revenue earned.

Quantum-wise, the royalties would certainly increase as Maruti's revenues have definitely been on a steady updward trend over the past 15 years. However, I'm not sure if the revenues/profits have vaulted 6 times though.

Perhaps it might also be due to the "tweaking" of the royalty share for the newer models compared to what existed 15 years ago?
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Old 23rd October 2015, 11:26   #14
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Default Re: Maruti's royalty payouts to Suzuki increase over 6 times in 15 years

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Originally Posted by IndiFuture View Post
If a shareholder feels aggrieved, he/she can always raise it as an issue.
Absolutely!

Is there a hygiene compulsion on all human beings to buy stocks?
Are we talking about rice and wheat here?
You don't like the way company majority stakeholder are operating, you exit the ownership. It is THAT simple.


Quote:
Originally Posted by PearlJam View Post
So what? There is something called "rights of minority shareholders", where such shareholders can approach the court for unfair decisions. Please google for how Cadbury minority shareholders went to court and won, on the buyback price.
Even the Law agrees that it is better not to interfere in the workings of a concern.
Only when there is a dispute over majority's buyback price, the minority shareholders can approach court.
http://www.legalservicesindia.com/ar...rs-1503-1.html

The Cadbury case is not relevant to this thread's discussion.
Quote:
Originally Posted by GTO View Post
Maruti is now a publicly listed company. It is answerable to its investors. Suzuki is NOT the only owner of Maruti.

Plus, as 56% owner of Maruti, Suzuki anyway takes a lion's share of the profits. Keeping that in mind, I can completely understand why other investors see this as a rip-off. If I owned shares in Maruti, I would too.
But has the stock price gone down because of this practice?
For an owner there are only two things that matter:
1. Am I getting the dividends
2. If not to my satisfaction, then at least, is the valuation going up

I do not see any downward trend in the share price of Maruti post this report.

Last edited by alpha1 : 23rd October 2015 at 11:45.
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