Maruti Suzuki gets nod to ink contract manufacturing pact with Suzuki Motor

The voting on the ordinary resolution sought MSIL’s minority shareholders’ approval for: contract manufacturing agreement to set up the requisite manufacturing facilities in Gujarat; lease deed in relation of land; deed of assignment; and any other agreement or documentation needed.

Following the approval, Mr. Bhargava said the company will move ahead to transfer assets at the Gujarat plant, where it has already invested Rs. 350 crore, to Suzuki’s wholly owned arm Suzuki Motor Gujarat Pvt. Ltd.

In October, Maruti Suzuki’s board approved the contract manufacturing agreement with a local unit of Suzuki to build a new factory in Gujarat, which is initially expected to produce 250,000 units per year.

The new Suzuki subsidiary would establish six assembly lines, each with the capacity of making 2.5 lakh cars. The plant will then sell the cars at cost price to Maruti Suzuki and the cars will be sold as part of the Maruti Suzuki product portfolio. He also says the Gujarat plant model is a unique transaction.

Suzuki’s motive for the investment is they would eventually get a share of the profits Maruti Suzuki would generate from the plant as majority owners of the Indian automaker, he said. MSI’s two divisions at Gurgaon and Manesar have a total fabrication capacitance of 1.5 million units per annum. “Maruti can use the money instead for strengthening its R&D and on extending the marketing and distribution network”. The total investment in the Gujarat plant accounts for approximately Rs 18,500 crore with Suzuki’s contribution being around Rs 8,000-Rs 10,000 crore. Moreover, Maruti Suzuki will provide manpower to Suzuki Motor Gujarat for support, advice and guidance in manufacturing processes at the plant.

“The resolution has passed comfortably with 89.75 per cent of the minority shareholder who cast their vote voting in favour and 10.25 per cent voting against the proposal”, Maruti Suzuki India (MSI) Chairman R.C. Bhargava told reporters. LIC (which holds almost 6%), index funds, passive funds proxy advisory firm Institutional Investor Advisory Services many retail investors and those holding participatory notes abstained from voting, company officials said.

MSIL consistent with the production needs of the latter. Suzuki will refund this amount as soon as the manufacturing agreement is signed, he said.