Maruti to make royalty payments due to parent Suzuki Motor in rupees

Maruti Suzuki India, the nation’s top carmaker, said on Thursday it would make royalty payments due to parent Suzuki Motor Corp for all future models in rupees to limit risks from foreign exchange fluctuations.

“On all future models the royalty will be expressed in rupees…and not (in) the yen so that we are not exposed to the variation in the exchange rate which has been happening in the past,” Maruti Chairman R.C. Bhargava told shareholders at the company’s annual general meeting in the Indian capital.

Maruti, over 56 percent-owned by Suzuki, currently pays royalties in yen for use of technical know-how and its Japanese parent brand name. The company paid Rs 2486 crore ($412 million), or nearly 6 percent of its net sales, in royalties for the year to March, according to its annual report for the year.

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In February, some large Indian investment funds, challenging a plan by Maruti to source cars from a plant in western India to be built by Suzuki, saying the royalty paid by Maruti to its Japanese parent was too high, a complaint made previously by minority investors.

Maruti, which has said it will take minority shareholders on board before progressing on the new Gujarat plant, expects the factory to be commissioned in 2017, chairman Bhargava said at the shareholder meeting.

Bhargava also said Maruti would invest in increasing its research and development capabilities, and the work done locally would be taken into account while calculating royalty payments.

“That will mean that our expenditure on R&D will get rewarded in terms of lower royalty rates,” he said.

Reuters