Why change a structure that's in my interest?: R C Bhargava

Interview with Chairman, Maruti Suzuki India

Last month, Maruti Suzuki had said its parent firm and majority shareholder, Suzuki Motor of Japan, would be setting up a fully owned subsidiary to build and operate its proposed Gujarat factory. Some key minority shareholders have protested, in a joint letter; they include mutual funds DSP BlackRock, HDFC MF, Prudential ICICI, Axis Mutual and UTI. Maruti’s chairman, R C Bhargava, says this is actually the best deal for his company, in a conversation with Surajeet Das Gupta. Edited excerpts:

The mutual funds have raised concerns that increasingly Maruti Suzuki will become a marketing company, while all the manufacturing will shift to the 100 per cent subsidiary with time. So will a majority of the profits.
 
The full capacity of the Gujarat unit is 1.5 million cars; the Gurgaon and Manesar plants under Maruti Suzuki have the same capacity. Also, you cannot shift a 1.5 million plant to Gujarat. So, these fears are unfounded. Two, 70 per cent of what we produce for the car is done by vendors and not in our plants; we assemble the car and do some important functions in our factory. So, we don’t manufacture the car completely in our factories in any case.

However, we do and increasingly will do more of research and development (R&D), apart from design and marketing, which are key to this business. Look at Apple Inc. It does not manufacture anything but concentrates on design, R&D and marketing, and makes money. There are many other companies like that. Three, I cannot understand how profits are being diverted when the proposed 100 per subsidiary will be selling the cars to Maruti Suzuki at cost price. It beats me.

Will you change the structure, considering there has been so much concern from small investors? Also, questions have been raised that Suzuki, by raising its royalty fee, is keeping more profits with it and that the new decision is also not transparent and meant to repatriate more profit.

They might have their reasons. But why should I change a structure which is in my interest and no one has given me a reason that it is not? This structure helps me to make more profit and that is good for shareholders. Also, they are mixing up the issue of royalty payments. What is our present decision having anything to do with royalty payments, which were raised after the government allowed us to do so? They have compared us with the royalty Bosch charges, which is a components company and not a car company. The fact is there is no other automobile company which has given the kind of returns we have given to our shareholders.

Life Insurance Corporation, a key shareholder, has, I believe, asked you to explain the new structure. Have they opposed it?

No, they have not. They are large shareholders and have asked us for more clarity. They have every right to do so. We have explained our reorganisation to all fund managers and minority shareholders. If it is required that we have to explain to them again, we will see. The interesting thing is that the big fund managers have not said anything.