[2cents]

Maruti Suzuki is numero uno in India for two reasons - purchase cost, and maintenance cost. I don't think they would compromise their golden goose by doing anything that would raise the cost of their vehicles. I believe this is just a matter of control--- could be complete control, in time. Perhaps they already have some plans for the surplus cash they have. No manufacturer will be sitting idle on that kind of cash for long.

[Surya-TJet]

Gentlemen, is it just me or does it look like Maruti will play the role that Hover Automotive plays for Nissan?

If that will be the case, should some customer buying a vehicle in this scenario face problems, will the end customer actually be able to reach the actual manufacturer Suzuki Motor Corporation?

Just my two thoughts..

[NYMEX]

Originally Posted by saket77

As the opening post says too, the markets have perceived this move negatively. The MSIL shares have plunged by good 10% against a flat Nifty.
Wonder what has prompted MSIL to disturb a winning combination/ arrangement. May be Suzuki gains more than Maruti in this arrangement.

The reasons why MNC's resort to such arrangements is to appropriate profits from the host market to the home company. The methodology is known as 'Transfer Pricing' and is a politically correct word for legally plundering resources from the host.

Suzuki Motors will drop such plans only if they suspect there may be a big drop in market share which makes the new investment financially nonviable.

[katchkamalesh]

This business move is just Excellent and Risk free for SMC.

Everyone knows that there is a huge market for the cars and though there is a slow down now, the future looks bright and there will be capacity additions made by all OEMS to cater to the demand.

Even now, OEMs with good products are adding capacity and some have deferred capacity addition. None of the OEMs have shelved any plans for capacity addition.

Suzuki knows that its investment is safe because demand for Maruti’s cars is always going to be there and this will met by SMCs plant. Hope SMC doesn’t poach production from Maruti's other plants so that it can make 100% utility of its plant and charge Maruti more.

I do not understand the logic of de-risking by Maruti's MD. Maruti's sales have been ever increasing and they need the capacity to cater to the demand rather than on marketing.

Whatever be the intention for Maruti, I just hope it is good for its shareholders and customers.

By the way, as per my understanding Royalty for production from the Gujarat plant will not be paid whereas production from others plants will have to pay royalty.

[veyron_head]

This is perhaps the first step for Suzuki for taking complete control in MSIL. After all, India is one of the most (or the only?) profitable markets for Suzuki. They would rather get their share in full instead of having a subsidiary.

Moreover, in the bike market, Suzuki has been able to establish an independent identity after parting ways with TVS and they have also seen success (albeit partial). That could sure be an impetus to mull about a similar strategy with MSIL.

[devsoftech]

With launches like YL1 and Celerio in the pipeline, any chances that they will be rolled off from SMC's Gujarat plant ? May be maruti suspected that selling AT's under "MSIL" badge will uncover the past and with "SMC" badging, the old school thoughts might die. I'm being theoretical here.

[bullrun87]

"At least seven fund houses have raised a red flag over Suzuki's plan to set up a manufacturing facility in Gujarat and asked for a "rethink", arguing that the move is "neither fair" nor in the interest of its 56%-owned Indian arm, Maruti Suzuki, and its minority shareholders."
http://timesofindia.indiatimes.com/b...edium=referral

[GTO]

Maruti sends in the following information. There's quite a lot of investor unrest:

Information on Gujarat Project

New Delhi, 26th Feb 2014: Maruti Suzuki India Limited made an announcement on 28th Jan, 2014 regarding its Board decision on Gujarat project. Following the announcement, there have been queries and request for clarification from investors and media related to pricing and funding of capacity expansion in the proposed contract manufacturing arrangement.

The Company hereby clarifies the following to stock exchanges and investors.


1. The Suzuki Motor Corporation's subsidiary in Gujarat (Sub) would operate on the basis that while it would not make any losses, it would also not accumulate any cash surpluses.

2. The cost of production of vehicles, produced by the Sub, would be calculated in an identical manner to that followed by Maruti Suzuki India Limited (MSIL) in Haryana, and as would have been done if the Gujarat project had been executed by a 100% subsidiary of MSIL. This cost may be called 'C', and would not include return on investment and profits.

3. In Haryana, MSIL marks up 'C', to generate profits, which includes the return on capital employed, to arrive at the ex-factory sale price to its dealers. The amount of the mark up is determined, at all times, by market conditions. The amount of this mark up may be called 'P'. The sale price to dealers is thus C+P.

4. The Capex needs of the Gujarat Sub would be met by i) the depreciation amount available with the Sub ii) by an amount generated as net surplus from the car pricing and iii) by SMC infusing fresh equity, to the extent necessary. The amount of surplus added to 'C' would be such as would ensure that the total ex-factory price of cars made available to MSIL remains less than C+P. MSIL would sell the cars to dealers at C+P.

5. The Capex needs of the Sub would be determined jointly by MSIL and the Sub, consistent with the production needs of MSIL from the Gujarat project.

6. If the contract manufacturing agreement expires, and in case is not extended by mutual consent, the assets of the Gujarat Sub would be transferred to MSIL at a fair value to be determined by independent valuation.

The above is also being communicated to investors who had written to the company seeking more details.

[srishiva]

Not much updates on this issue?

In the U.S, Caterpillar is supposed to have avoided 2.4billion in taxes by having a affiliate in Swiss which supplies parts globally and pays back royalty to Caterpillar in U.S.
PwC advised on the modus operandi and got richer by 55 million dollars for this.

Although different here, there should be something in it for Suzuki and nil for Maruti in this.

[.sushilkumar]

Maruti Pays a stagerring 412 million dollar as royalty to parent suzuki . With this Plant coming online, I think investors should be concerned as 412 million dollar is a lots of money for a royalty & it will only increase with time . More so because maruti is not making any efforts to do in house R & D and build products.

http://timesofindia.indiatimes.com/b...w/41685044.cms

Maruti, over 56 per cent-owned by Suzuki, currently pays royalties in yen for use of technical knowhow and its Japanese parent brand name. The company paid Rs 24.86 billion ($412 million), or nearly 6 per cent of its net sales, in royalties for the year to March, according to its annual report for the year.

[volkman10]

Institutional Shareholder Services changes stand, backs Maruti Gujarat plant project.

Global proxy advisory recommends Maruti Suzuki’s minority shareholders back a resolution on the ownership structure of the plant.

Boston-based Institutional Shareholder Services Inc. (ISS) on Monday became the second global proxy advisory firm to recommend that minority shareholders of Maruti Suzuki back a resolution on the ownership structure of the company’s planned Gujarat factory, reversing its previous stance that opposed the resolution.

Considering that foreign institutional investors hold 22.3% in Maruti, the ISS recommendation could swing the vote in favour of the resolution.


Voting is underway and the result will be announced on 17 December.


http://www.livemint.com/Companies/My...arat-plan.html

[volkman10]

Minority shareholders give thumbs up to Maruti's Gujarat proposal!

The mutual fund industry, the resolution has sailed through with more than 50 per cent shareholders voting in favour of the proposal.

All insurance companies, including Life Insurance Corporation, which owns five per cent in the company, are said to have voted in favour of the resolution

All insurance companies, including Life Insurance Corporation, which owns five per cent in the company, are said to have voted in favour of the resolution.

HDFC Mutual Fund, Birla Sun Life MF and ICICI Prudential MF, which have the largest shareholding in the company, are understood to have abstained from the vote, while UTI Mutual Fund and SBI Mutual Fund may have voted against it

http://www.business-standard.com/art...1700011_1.html

[KomS_CarLog]

This Gujarat plant will be built to churn out 1.5 million cars per year. It will have 6 assembly lines built (in a phased manner and depending on market dynamics), each line churning out 250 thousand cars. Once fully functional, the total Maruti-Suzuki car sales will touch the 3 million mark!

This plant will rollout it's first car in 2017.

[volkman10]

Baleno will be made in the Gujarat plant also. Could start in the early part of 2017.

The Baleno will be the product to be made in the Gujarat plant, in addition to, of course, what we are doing here

http://auto.economictimes.indiatimes...rgava/51628315

[volkman10]

Maruti Suzuki to step-up on Quality - would move from the PPM measurement to Zero Defect. Gears up for the mandatory recall policy which is speculated to come soon.

Only those vendors with us will go to Gujarat who have the quality levels we want them to deliver.
In the agreement between Maruti and its vendors, the onus for vehicle recall is on suppliers. If a component is found faulty and the vehicle is recalled because of that, the supplier is supposed to bear the expenses

Maruti Suzuki will stop offering contracts to auto component makers that fail to meet its zero-defect policy, as part of its efforts to avoid car recalls.

The Gujarat plant will also cater to overseas markets, which demand very high standards, making it critical for Maruti to have top-quality vendors.

These recalls are very, very expensive. Double digits of crores is more or less the average cost of a recall. But it could be much, much more than that (after the mandatory recall policy comes into play) and it could destabilize even those vendors who may have Rs.1,000 crore or Rs.700 crore turnover

Source