Companies & Sectors
Why investors are crying foul about Maruti's deal with Suzuki

Investors feel that handing over a critical and highly profitable project to a 100% subsidiary of Suzuki instead of Maruti Suzuki is neither fair nor in the interest of carmaker and its about 44% minority shareholders

Several investors of Maruti Suzuki India Ltd (MSIL) have raised objections over the carmaker's proposal to enter into contractual arrangements for expansion with a 100% subsidiary of Suzuki Motor Corp (SMC). SMC is majority shareholder in MSIL with 56.2% stake. This is the second time in past 10 years SMC is trying to establish its own manufacturing plant in India.


The shareholders said they were concerned that the contract for the plant in Gujarat meant the Japanese carmaker rather than Maruti would reap the benefits of rising domestic sales, at a time when India is tipped to become the world's third largest auto market by 2020. Minority shareholders hold 43.79% stake in Maruti Suzuki.


Seven fund houses, including ICICI Prudential MF, Reliance MF and UTI MF, which hold 3.93% stake in Maruti Suzuki are planning to approach market regulator Securities and Exchange Board of India (SEBI) after the car maker failed to address their concerns.


Some of the prominent shareholders holding more than 1% of the shares as of 31 December 2013 are:


Mutual funds are opposing Suzuki’s move to make the proposed Gujarat unit its wholly-owned subsidiary as the deal would transform MSIL into a distribution company from a manufacturing one.


While SEBI is yet to hear officially from the fund houses, it is already looking into the matter on suo motu basis.


According to the new corporate governance norms, this deal can be construed as related party transaction requiring approval from public shareholders, but these new regulations are yet to come into force and would be effective from 1st October.


Earlier, in a press release, the carmaker had said, "The price of the vehicles to MSIL would include cost of production by the 100% subsidiary and adequate cash to cover incremental capital expenditure requirements. The return on this investment for SMC would be realised only through the growth and expansion of MSIL’s business. The subsidiary will always remain a 100% subsidiary of SMC."


According to the investors, the initial installed capacity of the Gujarat Suzuki plant is for 250,000 cars per annum at an investment of about Rs3,000 crore. The final capacity of this plant would be 1.5 million (15 lakh) units. "Assuming a 15% CAGR for the Indian car industry, particularly give the low base of past few years, and a constant market share for MSIL, implies that the Gujarat plant will have to reach the 1.5 million cars per annum output by FY2021 itself," the investors said.


Number of vehicles (in million)




FY 14

FY 15

FY 16

FY 17

FY 18

FY 19

FY 20

FY 21

FY 22

FY 23

FY 24

FY 25

Total MSIL+Guj













Haryana (MSIL)

Cap full











Gujarat Suzuki












Outsourced from GSL (%)













Source: Letter from investors to MSIL


Investors feel that the expansion of Gujarat Suzuki plant to 1.5 million by FY2021 implies an incremental capex requirement of additional Rs12,000 crore (assuming 20% lower capex compared with the first phase on a per car basis).

"If the cash flows of the Gujarat plant have to fund the incremental capex (as mentioned in the MSIL release), this implies that the initial investment of Rs3,000 crore by Suzuki in phase I will be valued at Rs15,000 over the next six years (FY15-FY21) at cost itself. This implies an internal rate of return (IRR) of nearly 30%."


"Thus, while Suzuki is not taking cash or dividends, and the cash flows are being utilised to increase capacity, the IRR on Suzuki's phase I investment is very high and much higher than the cost of capital of both MSIL and Suzuki itself," the investors said.


Investors of MSIL are also worried about fresh investment requirement of the Gujarat Suzuki plant. They said, "It needs to be noted that the capex of Rs15,000 crore for 1.5 million cars is only for assembly. Fresh investment may be needed in engine and transmission capacity once the surplus capacity in Maruti's existing facility in Haryana is exhausted, which can further potentially increase the IRR."


"Moving this critical and highly profitable project into a 100% subsidiary of Suzuki instead of MSIL is neither fair not in the interest of carmaker or its shareholders and will lead to significant erosion of value for MSIL shareholders," the investors said.


Similarly, Bengaluru-based InGovern Research Services also had advised shareholders of Maruti Suzuki, to vote against the country’s largest carmaker's proposal to enter into contractual arrangements for expansion with a 100% subsidiary of Suzuki, the dominant shareholder in the company.


According to InGovern, this is not a simple contract manufacturing arrangement, as the dominant shareholder of MSIL is 'the contract manufacturer' and can dictate the terms of any contractual arrangement.


According to the proxy voting advisory firm, the positives stated by Maruti Suzuki that the company benefits from the interest expense of not investing is not tenable as the carmaker is a net cash flow unit and incremental cash generated would be better utilised for capital investment for this expansion.


"There is no compelling business logic for such an arrangement when MSIL has the necessary capital raising ability to make investments. It looks like the SMC subsidiary will enjoy the benefits of no business risk with assured vehicle offtake by MSIL and assured return on investments, while MSIL will bear the business risk of cyclical vehicle sales, competitive pressures, pricing and cost pressures. Inventory levels, car pricing and discounts, cost increases, dealer network management, post-sale servicing, brand management  would all be risks  that will continue to be  borne by MSIL, while the 100% SMC subsidiary enjoys an assured vehicular offtake at pre-determined prices," InGovern said in its advisory.


Earlier, in 2004, SMC announced that it would set up independent manufacturing plants in India for diesel engines and two wheelers. At that time, the union government took a tough stand on the proposal of SMC to pump in Rs1,000 crore in India to set up a new company for car assembly with a production capacity of 250,000 units. The government had said that it would not allow any competition from the Japanese carmaker which would hurt Indian shareholders of Maruti. This forced SMC to call for a truce. This resulted in the Indian government getting 70% stake in the new venture with SMS holding the rest.


Paid news should be made an electoral offence

The Election Commission send a proposal to Law Ministry to make paid news an electoral offence

Election Commission has proposed to the union government to make paid news an electoral offence even as it continues to tackle it itself by monitoring the expenditures of candidates.


Addressing a press conference, to announce the Lok Sabha poll schedule, chief election commissioner VS Sampath said paid news has three aspects – print media, electronic media and expenditure by candidates.


“Since there is no law (to deal with paid news), we have made a proposal to the Law Ministry to make it an electoral offence,” he said.


Meanwhile, he said, the Election Commission deals with the malaise by keeping a close watch on the expenditures of the candidates.


“Election Commission is doing what is under its control. We have monitoring committees in districts and states. We add the expenditure to the expenditure account of the candidate concerned,” Sampath said.


With regard to complaints about paid news in print media, he said the cases are referred to the Press Council of India.


As far as complaints regarding paid news in electronic media are concerned, such cases are referred to the National Broadcasters Association (NBA), he said.


To a question regarding demands for banning opinion polls, the CEC said it is for Parliament to decide.


“We never hesitate to use powers that we can. However, the issue of opinion polls is to be dealt with by the lawmakers. They have the legislative competence,” he added.


The issue of banning opinion polls has been hanging fire since 2004.




3 years ago

Despite sixty six years of experience, India is yet to realize that "Laws" are no substitute for morality, propriety, up bringing and good education. Particularly in a Nation where power and wealth cock a snook at the laws with the active assistance of Netas-Babus, Cops and Judges!


3 years ago

Times Group will be closed down if implemented :)


3 years ago


O K.... very good. But what about journalists like Ashutosh who publishes "unpaid" news and later join All Anarchist Party for their own gain?

Lok Sabha election from 7th April, counting on 16th May

Lok Sabha elections will be held from 7th April to 12th May spread over nine days in the highest number of polling days so far involving an electorate of 81.4 crore

India's mammoth Lok Sabha election will start on April 7, the Election Commission announced Tuesday, kicking off a race that will pit charismatic Narendra Modi-led Bharatiya Janata Party (BJP) against the ruling Congress party.


Lok Sabha elections will be held from 7th April to 12th May spread over nine days in the highest number of polling days so far involving an electorate of 81.4 crore, the Election Commission said.


Counting of votes in all the 543 Lok Sabha constituencies will be held on a single day on 16th May, Chief Election Commissioner VS Sampath announced at a press conference

Instant feedback to voters through VVPAT

Voter-verified paper audit trail (VVPAT) is a method of providing feedback to voters using a ballot less voting system. VVPAT is intended as an independent verification system for electronic voting machines that allows voters to verify that their votes are cast as intended and can serve as an additional barrier to changing or destroying votes.


Under VVPAT, a printer-like apparatus is linked to Electronic Voting Machine (EVM). When a vote is cast, a receipt is generated showing the serial number, name and symbol of the candidate. It confirms the vote and the voter can verify the details. The receipt, once viewed, goes inside a container linked to the EVM and can only be accessed by the election officers in rarest of rare cases. The system allows a voter to challenge his or her vote on basis of the paper receipt for the first time.

flanked by ECs HS Brahma and SNA Zaidi.


Assembly elections will also be held simultaneously in the states of Andhra Pradesh, including Telangana region, Odisha and Sikkim.


Sampath was at pains to clarify that it is not a nine-phased polling and the whole exercise will be over in 72 days, three days less than the last elections.


The model code of conduct for parties and governments comes into force with immediate effect, he said.


The first polling day on 7th April will cover six Lok Sabha constituencies in two states, while the second on 9th April will cover seven constituencies in five states.


About 92 constituencies will go to polls in 14 states on the third day on 10th April while a small number of five constituencies in three states will be covered on the fourth day on 12th April.


The largest chunk of 122 Lok Sabha seats will go to polls in 13 states on 17th April, the fifth day of poll, while the sixth day will witness polling in 117 seats in 12 states on 24th April.


The seventh day of polling on 30th April will choose representatives in 89 constituencies spread over nine states and the eighth day on 7th May will cover 64 seats in seven states.


Polling will conclude on the ninth day on 12th May with elections in 41 constituencies in three states.


Andhra Pradesh, which has 42 Lok Sabha seats, will go to polls on 30th April and 7th May. Elections in the respective assembly segments will be held simultaneously.


The first day of polling on 30th April will cover 17 Lok Sabha seats and 119 Assembly seats in the Telangana region and the second on 7th May will cover 25 Lok Sabha seats and 175 Assembly seats in the Seemandhra region.


Sampath explained that irrespective of the appointed day for the creation of the new state of Telangana, elections will be held in the Lok Sabha and Assembly constituencies as they exist today.


The corresponding Lok Sabha and Assembly constituencies would go to the respective states once the bifurcation process of the state is complete.


The total electorate in the country as per final published E-rolls with 1 January  2014 as the cut-off date is about 81.45 crore compared to 71.3 crore in 2009, an increase of more than 10 crore electors.


Over 2.3 crore new electors in this age group of 18 to 19 years, constituting 2.88% of total electors have been added. The last election had seen an increase of 0.75% in this age group.


The number of electors enrolled as "Others" gender that comprising transgender is 28,314. There are also 11,844 overseas electors in the current electoral rolls and another 13.28 lakh service electors.


Election schedule


Arunachal Pradesh will have single day polling on 9th April to cover two constituencies, while Assam with 14 Lok Sabha seats will have a three-day poll on 7, 12 and 24th April.


Bihar with 40 constituencies will have polling on six days beginning 10, 17, 24 and 30th April and 7 and 12th May.


Naxal-hit state of Chhattisgarh will witness a three-day poll on 10, 17 and 24th April to elect 11 MPs, while the small state of Goa with two constituencies will have a single day polling on 17th April.


Gujarat (26 seats), Haryana (10) and Himachal Pradesh (4) will have a single day polling on 30th April 30, 10th April and 7th May, respectively. Kerala (20) and Karnataka (28) will also have a single day polling on 10 and 17th April respectively.


Jammu and Kashmir with six Lok Sabha seats will witness polling on five days on 10, 17, 24 and 30th April and 7th May, while Jharkhand with 14 seats will go to polls on three days - 10, 17 and 24th April.


29 seats in Madhya Pradesh and 48 seats in Maharashtra will go to polls on three days -10, 17 and 24th April.


Two seats in Manipur will go to polls on 9 and 17th April while its neighbours Meghalaya (2), Mizoram (1) and Nagaland (1) will go to polls on a single day on 9th April.


Odisha (21 LS seats) will have a two day polling on 10 and 17th April to elect 10 and 11 constituencies respectively. On the same days, assembly elections will be held on 70 and 77 assembly segments, respectively.

Punjab will have a single-day polling on 30th April to elect 13 MPs, while Tamil Nadu (39 seats) and Puducherry (1) and will go to polls on 24th April. Uttarakhand (5) will go to polls on 7th May.


Voters in Rajasthan with 25 seats will exercise their franchise on 17 and 24th April to elect 20 on the first day and 5 MPs on the other day.


Sikkim's lone Lok Sabha seat will go to polls on 12th April while simultaneously electing its 32-member Assembly.


Tripura with two seats will witness a two-day poll on 7 and 12th April while heartland Uttar Pradesh will choose 80 MPs on six days on 10, 17, 24 and 30th April and 7 and 12th May.


West Bengal will go to polls on five days to elect 42 MPs on 17, 24 and 30th April and 7 and 12th May.


NCT of Delhi with seven seats will have a single day poll on 10th April. Likewise the Union Territories of Andaman and Nicobar Islands, Chandigarh and Lakshadweep will choose their lone representatives on 10th April, while Dadra and Nagar Haveli and Daman and Diu will elect their sole representatives on 30th April.



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