MSIL’s net profit and free cashflow generation will get a boost due to lower capex requirements, points out Nomura in a research note
The entire capex of the Gujarat expansion plan (1.5mn unit capacity) would be funded by depreciation and equity brought in by Suzuki Motor Corporation – Suzuki Gujarat will make zero EBIT margins. Maruti (MSIL) will not forego its profit margins for expansion at the Gujarat plant.
MSIL’s net profit and free cashflow generation will get a boost due to lower capex requirements. For Suzuki, return on Gujarat investment would be only through MSIL, which is positive for MSIL shareholders. Further, the decision to seek approval of minority shareholders ensures high standards of corporate governance. These are the observations made by Nomura in a research note on the Maruti expansion plans.
Assuming 12% annual volume growth over the long term, Nomura’s calculations suggest that Suzuki will need to invest equity of around Rs130bn over FY16-22F while the remaining Rs50bn will be funded by depreciation charged to Maruti (Nomura has assumed capex of Rs30bn for every 250,000 units).
At 13% discount rate, this Gujarat plant expansion by Suzuki implies NPV of Rs50bn (Rs160/share) for Maruti. If it is assumed that the Gujarat plant will be merged once the contract expires after 15 years at book value, then, the net benefit for Maruti shareholders would be around Rs33bn (Rs110/share), as per Nomura’s calculations (see table below for details).
Overall, Nomura feels that this is significantly positive for MSIL shareholders and it expects strong positive stock reaction.
The Parliament could have passed some of the pending Bills, including the Grievances Redress Bill and the Whistle-blowers Bill. However, the self-flagellation and ego of the Congress combined with antics of the Opposition turned everything topsy-turvy
There was recently a frantic race among Congressmen how to persuade the President of India to issue a couple of ordinances because the young master, Rahul Gandhi, desired it. It is a different matter that none of the proposed laws were opposed by the Opposition. Had the House managers done their homework, Parliament could have passed some of the pending Bills, including the Grievances Redress Bill and the Whistle-blowers Bill. The self-flagellation and ego of the Congress combined with antics of the Opposition turned everything topsy-turvy. The Telangana Bill, with both major political parties indulging in political manoeuvring, was passed by voice vote, embellished by a peppery spray and a shameless failure of live TV coverage of the proceedings of the House (one does not yet know the villain - the government has not held an inquiry).
And pray, how come Rahul is so insistent on the ordinance route when, in the matter of disqualification of convicted legislators, he had publicly shamed the Prime Minister and his government by tearing the ordinance!
Can the President accept an ordinance when both Houses are not going to meet before the general election in May 2014 and there is going to be a new Lok Sabha? It would amount to shredding the Constitution, if the President were to approve the ordinances, which in law were never deliberated by the members of the Lok Sabha. Are the newly elected Lok Sabha members expected to initiate their work with old Bills? I have not much objection to the broad contours of the Bills - I myself have been a public signatory to a statement demanding that before the dissolution of the Lok Sabha, the Bills on public grievances and whistle blowers be passed. But somehow it did not happen. With time having run out, democracies cannot resort to devious methods.
I am aghast at the drama of ordinances for all these weeks in the Press. If the government was genuinely keen on having these Bills passed, what stopped it from extending the session by a few days? Unless the ruling party was manoeuvring to acclaim Rahul Gandhi as the sole Mr Clean of India, in the melodramatic repetition of the 1940 movie of Hollywood decades back, namely “Mr Smith Goes to Washington” and the more recent Bollywood version equally well-crafted and starring Amitabh Bachchan, “Main Azad Hoon” — I fail to understand why his followers did not insist on extending the session for a couple of days to pass these Bills, which certainly would have received no opposition. Of course, if the real intent was to seek a mileage, then unfortunately the move has backfired.
Even if the President had been persuaded to issue the ordinances, these would have had no validity or life and the new Lok Sabha would have to pass them afresh. Was this fuss worth even a penny?
A vibrant democracy is not governed by ordinances. This provision is an anathema to a democratic Republic. I feel that the ordinance issuing power is an anachronism dating back to the colonial Acts of 1919 and 1935 and it should be deleted from the Constitution. No other parliamentary democracy has such an undemocratic provision.
The Supreme Court has firmly held in the Wadhwa’s case (1987) that the power conferred on the Governor to issue ordinances is in the nature of an emergency power for taking immediate action when the legislature is not in session. The primary law-making action under the Constitution is with the legislature and not the executive. The power to promulgate an ordinance is essentially a power to be used to meet an extraordinary situation and it cannot be allowed to be “perverted to serve political ends” (emphasis supplied). “It is contrary to all democratic norms that the executive should have the power to serve political ends”.
A similar provision empowers the President under Article 123 of the Constitution. This is a hangover from the colonial period but then we have retained gleefully many remnants of the British law like sedition, applicability of which is causing havoc in the lives of young activists, especially those belonging to minorities. This power of issuing an ordinance has no place in a democratic country.
Consider the ground rules of the situation. The general election is to be held in a couple of months. On a conservative estimate, a minimum of half the existing members of the Lok Sabha are going to be defeated. Should these rejected politicians forestall the right of the new members either to accept or modify radically the said legislation? It was unseemly for the government to start stray winds of gossip and news items indirectly to gauge the reaction of the President if the ordinances were sent to him.
We have the answer. Democratic norms and conventions in the country have at last been reiterated eloquently by the quiet, dignified and steadfast stand of President Pranab Mukherjee in refusing to give consent to the ordinances, notwithstanding the frantic legal erudition of P Chidambaram. The President was not moved by the almost tearful lament of Foreign Minister Salman Khurshid, saying how the rejection has come in the way of Rahul Gandhi’s vision. Khurshid should not take it to heart because the coming general election will give all the opportunity to Rahul Gandhi to test his vision. Now that the question of ordinances is over, I hope Rahul and his seasoned advisers will remember the old admonition: “Be you ever so high, the law is above you”.
(The writer is a former Chief Justice of the Delhi High Court)