NEW DELHI: The country’s largest carmaker, Maruti Suzuki (MSIL), is terminating the contract manufacturing agreement (CMA) and exercising the option to acquire shares of Suzuki Motor Gujarat (SMG) from parent company Suzuki Motor Corporation (SMC). MSIL expects to complete the transaction by March 31, 2024.
As per MSIL, they need to double their production capacity to about 4 million (40 lakhs) cars per annum by 2030-31 to meet future demand. This would happen over several locations and several powertrain technologies like EVs, Hybrids, CNG and Ethanol will co-exist for a reasonably long period of time.
“Managing this scale and complexity of production with multiple powertrains, under different managements, would pose several challenges. The Board of Directors considered this and decided that for the purpose of efficiency in production and supply chain, it is best to bring all production related activities under MSIL,” said MSIL in a regulatory filing.
MSIL Board’s decision to sign a contract manufacturing agreement with SMC in 2014 was met with resistance from minority shareholders as the Gujarat plant was supposed to be housed under SMC and not MSIL. R C Bhargava, Chairman, MSIL in a press conference said the move has been necessitated by changing market environment and the current situation is not same as it was in 2014 when the structure of forming SMG was created. He added that how equity will be acquired and in what form is yet to be decided. MSIL board meeting is expected in next seven days.
Now that MSIL is taking over SMG, first electric vehicle (EV) production will be done by MSIL instead of SMG. SMC’s plan to establish a battery plant in Gujarat is not a part of this transaction. SMG has an installed capacity of 7.5 lakh units per annum while MSIL can churn out 15, 80,000 units. SMG, incorporated under the Companies Act at Hansalpur, Ahmedabad, in 2015, has been manufacturing cars like Baleno, Swift, Dzire, and the recently launched Fronx for MSIL under a contract manufacturing agreement (CMA) signed in 2015. Shriram Subramanian, founder and MD of corporate governance advisory firm InGovern, said it is a positive development for shareholders but a lot depends on what MSIL would be paying to SMC. He said it could mean SMC’s stake in MSIL may increase.
Meanwhile, MSIL, on Monday reported a 145% jump in its Q1FY24 net profit to Rs 2,485 crore due to improved margins and lower commodity prices as against Rs 1,013 crore in Q1FY23. Revenue from operations rose 22% yearYoY to Rs 32,327 crore in Q1FY24. However, when compared with Q4FY23 PAT, MSIL’s profit in Q1FY24 saw a fall of over 5%. MSIL sold 498,030 vehicles, up 6.4% YoY. Shortage of electronic components in this quarter resulted in over 28,000 vehicles not being produced.