[Prafful_Rathod]

Originally Posted by desiaztec

Maruti doesn't pay any royalty to Suzuki. Maruti or the Government of India is a minor stake holder and Suzuki is the major stake holder in MSIL. Profits and dividends are distributed according to the number of shares.

Also, royalties are paid when copyrights and patents are used by a second party. The issue of royalty as per my understanding doesn't exist between Suzuki and Maruti.

This is not correct. Maruti pays around 5.8% royalty on net sales to Suzuki. Earlier there was a cap by govt on the royalty paid by Indian company to their foreign parent co for transfer of technology, which was removed a couple of years back.

[.sushilkumar]

I find it Pretty interesting development from a share holders perspective.

A )A company Sitting on a Surplus cash pile of 7500 crores (As Per Today's TOI delhi edition) Suddenly decides to contract manufacture via it;s parent thus lowering it;s own Profit margin's. Just defies the logic.

B )Most interesting Bit is that Mr Bhargava didn't find it fit to Seek Share holders approval for such a important decision.

Fact is Suzuki is struggling in every market except for india & they want to squeeze max from here. This contract manufacturing bit will just ensure that. I am sure shareholders would have Sued them, Has it been US or Europe But in India, I see no chance

One question - Will MSIL stop paying Royalty to suzuki after this plant comes online. Technically it should Stop Since suzuki will be using tech in it;s own plant for itself .

[Ketz]

Every company which invests in a foreign business on foreign land does so to make financial profits. There are couple aspects to this activity, which includes running profitable operations, building and selling the correct mix of products in the market etc. Once the investments have made profits, the most crucial step is to take the profits back to the parent company.

The last point that i mentioned is where the barrier are put up by governments. The gov policies would make it easy for companies to invest in their country while they would like to keep the profits made by the company to stay back and be reinvested.

Indian policies are no different, the most preferred route that has been used by most MNC's recently is the royalty route, via which they could take the intended share of profits back to the parent in form of royalty payments. This has been true with many companies across sectors be it HUL or MSIL.

There is an upper cap to the percentage of the earning which can be taken back through the royalty route. Suzuki now wants to change the route to take back profits on their investments by setting up their own manufacturing subsidiary which would be a private company. The stringent company laws are lighter on privately held companies as compared to public ones.

I would not take a moral high ground by saying this is not ethical practice or correct by nature. I just view this activity to be pure business decision.

Remember that Suzuki (parent) has to answer shareholders back in Japan, not so in India. How MSIL responds to its shareholders is not as big a concern.

Btw, i never like MSIL as a stock for the very same bias mentioned above from Suzuki for long. Suzuki treats its Indian partner not a real partner for long term sustainability but as a marketing/sales profit center to tap the Indian customers.

[lurker]

.sushilkumar
Exactly, if they still have to pay royalty after this, then this is a very self-defeating step, not just for Maruti but for entire manufacturing sector. It would mean that the entire BoD of Maruti Udyog have sacrificed the company's interests on behalf of it's Japanese partners.

In any case the time is high when the govt steps down on Maruti and forces it to restore the safety and structural features which they seem to be cutting out blindly with concern of reducing costs. And in the end, they may name their cars differently but most of their economy models end up riding and feeling as no better than tin-cans. It's a blight on India and it's governance that a company is allowed to get away with this.

[rajeev k]

Perhaps, Suzuki big wigs would have thought that going the Suzuki way is the easiest one to set up shop in Gujarat than go through the Maruti Suzuki Board of Directors (BoD) route for formal board approvals.

[.sushilkumar]

Originally Posted by rajeev k

Perhaps, Suzuki big wigs would have thought that going the Suzuki way is the easiest one to set up shop in Gujarat than go through the Maruti Suzuki Board of Directors (BoD) route for formal board approvals.

I suspect if that was the case since MSIL has everything Approved from Gujarat govt in advance. The Parent Suzuki just realized that royalty is not enough to keep them floating & they need better revenue from India. So they devised the Above strategy. More over If i remember correctly they are getting some tax holiday as well there, So makes sense to invest themselves rather than via a profit making Subsidiary, Which anyway is contributing almost half of the revenue for them.

[CoolFire]

Originally Posted by .sushilkumar

The Parent Suzuki just realized that royalty is not enough to keep them floating & they need better revenue from India. So they devised the Above strategy.

There was a rumour going on in the circles that Government is contemplating reintroducing the cap on royalties. I think this could be the biggest reason for this move.

Anyway, sad to see how shoddy Companies treat their minority shareholders. Reminds me of how some Germans auto companies treat their customers

[lurker]

If Maruti intends to repatriate profits, in the amounts they are doing so now, back to Suzuki.

Then let them do so after making DAMN GOOD, STRUCTURALLY SAFE, FULL FEATURED cars that do not endanger Indian lives and expose them to unnecessary risks while on highways/freeways & elsewhere.

That is my only objection.

As customers, ordinary Indians should not have to suffer any lack of features just so that Maruti can repatriate much more profits back to Suzuki. Think about it.

[Insearch]

Originally Posted by .sushilkumar

I suspect if that was the case since MSIL has everything Approved from Gujarat govt in advance. The Parent Suzuki just realized that royalty is not enough to keep them floating & they need better revenue from India. So they devised the Above strategy. More over If i remember correctly they are getting some tax holiday as well there, So makes sense to invest themselves rather than via a profit making Subsidiary, Which anyway is contributing almost half of the revenue for them.

Both Suzuki and Maruti Suzuki India are publicly traded companies and all details of their incomes and expenses are available in the annual report (even gains and losses on short term investments for example parking funds in a fixed deposit or a Liquid Mutual fund). Of course if you feel that they may be fudging, then it is a different ball game altogether. Suzuki is listed in Japan and I wonder if you would qualify Japan (regarding fudging) in the same tone...

Very big financial institutions, both Indian and foreign, have large holdings in Maruti and have enough power to influence/expose any move that may be detrimental to their investments in the firm. There are ample examples of this in the past too (Institutions were against Satyam's moves, under Raju, and prevented him from jeopardising their investments. this eventually unwinded with Raju being exposed). While Indian corporate governance is still young, let's not forget that the financial crisis of 2008 was largely born out of International firms, which had shortchanged their own shareholders.

Additionally, in a publicly traded and well researched stock, there is no place to hide, for the management. The 10 odd percent punishment, meted out to the stock yesterday, is an example. Which shareholder would not question the management, when the value of his investments is going down? While it is true that Mr. Bhargava has said that there was no need to seek approval from minority share holders, he and his team are still answerable and they would be loath to risk such a legendary company's reputation on a corporate governance issue (buying more expensive cars from Suzuki, and not acknowledging it).

Overall, we have to watch and see how the two companies execute this strategy, what they show in their books of accounts and how the big institutions see it all.

[lurker]

They may well be public limited companies, but Maruti has refused to clarify even after repeated emails by various press & media outlets on the breakup of this royalty and criteria involved therein, Maruti has stonewalled all such queries and presented a stony silence to any such questions.

So let us not credit Maruti with transparency etc ... yet.

[hrman]

Excellent move!! How the militant workers in Gurgaon have ensured their families don't get to live on Maruti salary for the next few generations!! Good move by Maruti!

[srishiva]

I dont think this has anything to do with the workers in Gurgaon. If that was the case, they could have moved their manufacturing unit elsewhere.

I smell something sinister as few have mentioned above. This is akin to getting and paying for services from your own favoured internal people. How much will they pay them and what profits are they going to make from this deal? Hopefully this is not a way to siphon off the money outside the country.

[i74js]

Originally Posted by Drivethru

Maruti Suzuki acquired around 1200 acres land in Gujarat for this expansion. Gujarat is perceived as better place to do expansion after many untoward events in Haryana plant in last few years. But the surprise is Suzuki (SMC) building cars and selling it to Maruti Suzuki.

The land acquired for in Gujarat is also sufficient for conversion into SEZ. It may be possible that in due course of time, SMC may use this facility for exports and gain from SEZ status (if it move in that direction). Only time will tell.

Also, I do agree that the MSIL margins will reduce as finished product is purchased and only trading is carried out. It is also important to note that MSIL will save a lot in terms of
- Paying devidends to SMC (which is the BAU practice for complete sales / profits margins from within India)
- Zero inventment for production facility establishment
- Reduced risk from peers as the product line will determine future market share of MSIL in India

This may not be considered as a bad move.

Cheers

[.sushilkumar]

Originally Posted by .sushilkumar

I find it Pretty interesting development from a share holders perspective.

Originally Posted by Insearch

Both Suzuki and Maruti Suzuki India are publicly traded companies and all details of their incomes and expenses are available in the annual report (even gains and losses on short term investments for example parking funds in a fixed deposit or a Liquid Mutual fund). Of course if you feel that they may be fudging, then it is a different ball game altogether. Suzuki is listed in Japan and I wonder if you would qualify Japan (regarding fudging) in the same tone...

Not Quoting your whole post.


Well . You Missed the "share holder " part in My Original Post. Irrespective of Number of Shares i hold, I has each and every right to question the so called publicly traded company's decision If i think that they are putting my investment at risk With their decisions. I am simple unable to apply any available Logic Wrt to Mr Bhargava's Statement, More so when company Is sitting on a cash pile of Rs 7500 Crores (see Below article, Point no 6).

http://www.firstpost.com/business/no...a-1364499.html

As For Japan goes, I Have traveled there and know how business is done There. It;s pure Ethics ,trust and with Than Legal framework ( In That Order). Problem is that In india there is no "Share Holder Activism", even publicly listed companies do away with harmful decisions . "Yahoo" is a classic example of what "Share Holder Activism" is .

[i74js]

Though I can see that there could be transfer pricing issues between the two companies which can be challenged by shareholders in case MSIL pays more to SMC for the procured products (provided both are producing same cars at any point of time with same level of localization).

Keeping fingers crossed