Buzz again on Suzuki raising Maruti stake

With a 40% share of the domestic automobile market, MSIL is India's largest car maker

Maruti Suzuki, the country’s largest car maker, indicated on Tuesday that parent Suzuki Motor Corporation (SMC) might raise stake, at some future date, in the Indian company.

R C Bhargava, chairman of Maruti Suzuki India Ltd (MSIL), said: “They are not planning to buy (additional stake) now but the chairman (Osamu Suzuki) has been quoted in the media saying they might consider it in future.”

Bhargava was responding to media reports of the Japanese automobile major looking at acquiring additional stake in MSIL to streamline control and integrate operations.

A key Japanese merchant bank which represents Suzuki is understood to have made presentations to some of the institutional investors which own equity in the joint venture to gauge their response.

SMC owns 56.2 per cent in MSIL and is reportedly considering a range of options to raise this. It could look at a share buyback, which would mean an open offer, buying from the market or a creeping acquisition of shares (up to five per cent allowed every year). It could also opt for a preferential issue of shares.

With a 40 per cent share of the domestic automobile market, MSIL is India’s largest car maker. Its market capitalisation is Rs 53,791 crore. Suzuki currently has a cash reserve of Rs 39,600 crore. If it decides to follow the lead of Unilever and increase its holding in the Indian arm to 75 per cent, it will have to shell out about Rs 10,000 crore (on Tuesday’s market value). However, if it goes for share buyback, its payout will be higher because it will have to offer a premium over the market price.

According to sources, Suzuki’s rationale in looking to strengthen its control is the Indian company’s growing importance in SMC’s global operations. MSIL, which accounts for nearly 50 per cent of SMC’s total unit sales and 25 per cent to sales revenue, is Suzuki’s largest foreign subsidiary. Since 2007-08, MSIL sales have been higher than parent SMC’s home-market sales.

The parent company had earlier this year shifted to MSIL the responsibility of producing and marketing vehicles to countries in Africa, West Asia and Southeast Asia, “where it doesn’t have operations. Suzuki will focus on Europe, China and the rest of the markets”, Bhargava had told Business Standard.

Also, Maruti Suzuki is working to make operational an integrated research & development (R&D) centre in Rohtak, Haryana. The test tracks at this centre would be longer and with better technical capabilities than those of SMC in Japan.

When the testing facility and R&D centre are ready (in two to three years), the Indian company would start designing, developing and testing SMC vehicles for the African, West Asian and some South Asian markets.
DRIVING AHEAD

• A key Japanese merchant bank which represents Suzuki is understood to have made resentations to some of the institutional investors which own equity in the joint venture to gauge their response
• With a 40 per cent share of the domestic automobile market, MSIL is India’s largest car maker. Its market capitalisation is Rs 53,791 crore