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The proposal paves the way for SMC, the 56 per cent owner in Maruti Suzuki to develop a 100 per cent subsidiary that would manufacture cars to be sold and marketed by the Indian company.
Maruti Suzuki got approval of 90 per cent of the minority shareholders votes that is mandated under the Companies Act, 2013 for two related proposals. These were a contract manufacturing agreement for the production and sale of vehicles and a deed for leasing land for purposes of implementing the contract manufacturing agreement.
"A total of 6,58,33,152 votes were cast during the month long voting. While 5,90,84,468 votes were polled in favour of the resolution, 67,48,684 votes were against the resolution," the company said in a statement.
Suzuki has already floated a company Suzuki Motor Gujarat Private Limited that is expected to invest a total of Rs 18,500 crore over a 10-year period to erect a cumulative capacity of 15-lakh cars in a phased manner.
After the shareholders approval the voting for which began on 16 November, 2015 and ended on 15 December, 2015, the entire assets of Maruti Suzuki like land would be leased to SMC that would give around Rs 350 crore to the Indian subsidiary for the change of ownership.
MSIL Chairman R C Bhargava aid in New Delhi announcing the results of the proposal that was initially opposed by all the major minority shareholders, "We have got the mandate for both the proposals. The passage is now cleared with a clear go ahead from the shareholders for this unique proposal. It is possibly for the first time in the Indian automotive industry that our investors across London, Singapore, Hong Kong, New York, Boston, Mumbai and Chennai have put faith in our proposal."
The analysts said that the development is a major development in the Indian automotive industry. "The automotive industry is going through transformation and for every OEM's it becomes very critical to have comprehensive strategy to succeed in the market; more so with the competition increasing day by day. Working in close alliances in areas like product development, new technology manufacturing, marketing and after sales etc will be very important going forward. With new alliance partners that could share Maruti's responsibility in these areas and become really competitive in the market place," says Abdul Majeed, partner with PriceWaterhouse, a global consultancy.
Maruti which is running a cash reserve in excess of Rs 14,000 crore for the September ended quarter would be putting in a major investment into the marketing and development of new products as the future production would be taken care by SMC. Maruti currently has five production lines at two locations in Gurgaon and Manesar where it can produce 14-lakh cars a year. Along with SMC's proposed 15 lakh its cumulative production capacity is expected to reach around 30 lakh by the year 2025.
Suzuki is expected to start the production as early as 2017 from Gujarat. "We are almost starving for capacity that has saturated at the current levels at both the locations, with a little scope for improvement that would be done to meet our need for the next year. Also any fresh capacity from Suzuki is likely to come only in 2017. We are working out means to get the incremental production to meet any spike in demand in 2016," Mr Bhargava added.
The company had started an extensive exercise to get the mandate in its favour after around 14 foreign and Indian investors and fund houses had objected to plans to shift the Gujarat assets to SMC. With a resolution getting the requisite majority decks have been cleared for Suzuki to finally setup up its manufacturing plant in India, finally.