Maruti to buy Suzuki's 30% stake in JV

Maruti Udyog Ltd today announced plans to buy Suzuki Motor Corporation's 30 per cent equity in Maruti Suzuki Automobile India Ltd (MSAIL), which will make it a fully owned subsidiary of the country's largest car maker. This company will subsequently be merged with Maruti Udyog.

MSAIL was set up about a year ago to establish a car plant in Manesar, Haryana, with an investment of Rs 1,524 crore. The plant will have an initial capacity of 100,000 cars and an eventual capacity of 250,000 by 2008-09.

Maruti Udyog and Suzuki have invested Rs 40 crore through the equity route in MSAIL. The joint venture has already spent about Rs 250-300 crore and will spend the rest of the project cost by the end of this year.

Maruti will also use its cash reserves to fund the new project.

A five-member committee consisting of Maruti Udyog Managing Director Jagdish Khattar, Joint Managing Director Hirofumi Nagao, Board Members RC Bhargava and Pallavi Shroff, and Independent Director Amal Ganguli has been set up to finalise the modalities of the transaction, including the price. The details of the deal will be finalised by September 2006.

Maruti Udyog's share price on the National Stock Exchange closed at Rs 841.85 or 3.36 per cent higher than yesterday's closing price. The company's stock touched a high of Rs 882.10 and a low of Rs 810.50 during the day's trading.

Maruti Udyog Chairman S Nakanishi said, "The merger of MSAIL with Maruti Udyog will create value for all stakeholders. It will retain all the benefits of the earlier arrangement and enable the management to focus on critical issues of business operations."

Announcing this decision at a press conference here, Khattar said the need to have a separate company for setting up a second car plant was not felt anymore.

The arrangement to have a separate company to make cars at Manesar involved wastage of resources in handling transfers between Maruti Udyog and MSAIL.

After the merger, Maruti Udyog's equity structure is expected to remain unchanged. But, due to the debt on MSAIL's books, Maruti Udyog's debt-equity ratio is likely to change.