Asserting that it will have full control over upcoming plant in Gujarat despite letting parent Suzuki own and invest there, Maruti Suzuki India (MSI) has hit back at proxy advisory firm IiAS, which asked minority shareholders to vote against the move, saying the conclusions are not based on any facts or logic.
The company said all profits from the project will come to it and rebutted IiAS' claims that Suzuki Japan owning the facilities in the state would shift the balance of power in favour of Suzuki and 'Maruti will lose control over its destiny'. "Maruti will have full control over what happens in Gujarat, and all the profits from the Gujarat production will come to Maruti. In addition, Maruti will earn treasury income from the money not invested in Gujarat," MSI said.
In a report last week, Institutional Investor Advisory Services (IiAS) had said: If the transaction is approved, Maruti will lose all control over its own destiny, and Maruti's shareholders will always remain subservient to the interest of Suzuki's shareholders. This is a zero sum game, what Suzuki shareholders will gain and given the loaded dice, they will, Maruti's shareholders will lose. Strongly denying the claim, Maruti said IiAS has not explained what shifting of balance of power to Japan means, or what is meant by Maruti's destiny, and how the company loses control over it, or how any of the other events above would happen, including control over operations and cash flows moving to Japan. "These seem to be conclusions of the IiAS based on emotions, suspicions or even perhaps some sort of aversion to foreign companies," the company said, adding the report has several errors, misunderstandings of the automobile business and conclusions that are not based on any facts or logic.
Explaining how Suzuki investing in Gujarat plant will help, Maruti said: "This arrangement will bring Rs 8,000 to Rs 10,000 crore of FDI into India at zero cost to Maruti...In addition, Maruti will earn treasury income from the money not invested in Gujarat." "The competitive position of Maruti in India will be hugely strengthened because of the additional Rs 8,000 crore to Rs 10,000 crore available to it, free of cost, being invested in product development and infrastructure building," it added.
All of this will certainly strengthen Suzuki's competitive position in India and help Maruti to retain its market share and profitability. "But the IiAS seems to overlook the fact that anything that helps Maruti become stronger, helps both the minority shareholders of Maruti as well as Suzuki," Maruti Suzuki said in reply to IiAS report. The minority shareholder voting on the Gujarat plant began on November 16. It would end on December 15 and the results would be declared on December 17.
In its rebuttal to the IiAS report, Maruti further said that the company's board has full power to take all decisions. "The directors are appointed by the shareholders. This position will continue unchanged irrespective of who owns the Gujarat plant. The position of the Board, or the Maruti shareholders does not, and cannot, change at all because of the funding arrangements for Gujarat," it said. The company further said that it is planning to double its capacity of sales outlets to match the production increase from Gujarat and the bulk of additional production would not be premium cars and would not be sold through premium channel.
"The Gujarat production cannot be sold unless there is higher sales capacity. The dealer workshops would increase from the present 1,700 to about 5,000. The distribution of spare parts, transportation infrastructure, stockyards, etc will all have to match the additional volume of sales in the future," the car market leader said. Previously IiAS had termed the Maruti royalty payments to Suzuki as 'extortive', adding that the amount paid has increased over six times per car sold over the past 15 years. Initially, the Gujarat plant was proposed to be owned by Maruti Suzuki but the plan was changed later with its Japanese parent Suzuki Motor Corporation announcing in January last year that it would invest $488 million to build the plant.
Last year, under pressure from institutional investors, Maruti Suzuki had decided to seek minority shareholders' approval after tweaking some of the earlier proposals for the controversial Gujarat plant, which it had initially planned to set up on its own. The change was, however, opposed by institutional investors forcing the company to seek minority shareholders' approval on the matter. They had even approached markets regulator Sebi seeking its intervention to safeguard the interests of minority shareholders. Private sector mutual funds and insurance companies, which own almost 7 per cent of the company, led the opposition.
Subsequently, MSI decided to seek minority shareholder's nod. However, the voting was delayed due to changes in regulations and MSI deciding to comply with requirements under the amended Companies Act. The Gujarat plant is envisaged to have an installed capacity of 7.5 lakh units annually. MSI's two units at Gurgaon and Manesar have a total production capacity of 1.5 million units annually.