NEW DELHI: Proxy advisory firm IiAS has raised serious questions on Suzuki Motor Gujarat (SMC) investment in the EV project instead of Maruti Suzuki (MSIL) doing it directly. It said that Maruti’s shareholders must constructively engage with SMC to understand how this structure will work as the company’s future is at stake.
Japan’s SMC, the parent company of MSIL, on Saturday had signed a memorandum of understanding with the State of Gujarat to invest approximately 150 billion yen (approximately `10,440 crore) for local manufacturing of battery electric vehicles (BEV) and BEV batteries.
IiAS (Institutional Investor Advisory Services) said that SMC will argue that this saves Maruti’s shareholders the capital, but Maruti had Rs 3,000 crore in liquid cash and little debt on its balance sheet on 30 September 2021, meaning investing Rs 10,440 crore over the project is unlikely to stress Maruti’s financial profile.
It added that the larger issue continues to be this inherent conflict of interest – between owning a 100% subsidiary and having a listed company in the same market. This also makes Maruti a distributor of SMC products.
“These structures make it easier for MNCs to hollow out the listed subsidiary and reduce its value. Maruti’s shareholders must constructively engage with SMC to understand how this structure will work… For Maruti, its future may be at stake. It must define its role in the EV venture.
A consultation with its stakeholders – as at the time of setting up the Gujarat plant in 2014, will enable Maruti to create a mutually beneficial deal structure and remain relevant,” said that proxy advisory firm.