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No need for shareholder consent for Gujarat plant decision: Maruti’s Bhargava
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  • No need for shareholder consent for Gujarat plant decision: Maruti’s Bhargava

No need for shareholder consent for Gujarat plant decision: Maruti’s Bhargava

Sindhu Bhattacharya • January 29, 2014, 10:34:21 IST
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Maruti Chairman R C Bhargava said he was unaware of any corporate governance issues with the Gujarat plant decision.

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No need for shareholder consent for Gujarat plant decision: Maruti’s Bhargava

New Delhi: Investors and people who claim to be furthering the cause of small investors have cried foul over Maruti Suzuki India’s announcement about giving up its Gujarat manufacturing facility to parent Suzuki Motor Corp. Though the decision is sudden, this could be a case of putting the horse before the cart because there is still much to be learnt since the actual contract manufacturing clause between Maruti and Suzuki is yet to be signed. [caption id=“attachment_847005” align=“alignleft” width=“300”] ![The decision is hugely beneficial to Maruti's investors, says Chairman R.C Bhargava. AFP](https://images.firstpost.com/wp-content/uploads/2013/06/rcbhargava-300x225.jpg) The decision is hugely beneficial to Maruti’s investors, says Chairman R.C Bhargava. AFP[/caption] Suzuki has said that it will set up a 100% arm to house and manage the Gujarat facility which will ultimately have an installed capacity of 7.5 lakh cars a year. This means some years down the line Suzuki will directly control a third of the manufacturing capacity in India. Maruti, in which Suzuki owns 56% equity, is already majority owned by Suzuki and therefore each of its current facilities in Haryana (Gurgaon and Manesar) with capacities of 7.5 lakh units a year each are already majority owned by Suzuki. So, investors, who allege corporate governance issues and fear loss of manufacturing margins, should pause before beginning a panic selling of the Maruti stock. Things may not be as bad as they seemed yesterday, indeed the decision may well get investors richer. Speaking to Firstpost this morning, Maruti Chairman R C Bhargava said he was unaware of any corporate governance issues with the Gujarat plant decision. Many analysts have made allegations of corporate governance norms violation. “No one is telling me what their concerns (on the deal) are. We are willing to answer any specific issues investors may have.” Company sources say sensing the negative mood of investors, it may hold more analyst and investor conference calls in Delhi and Mumbai over the next few days to allay concerns. Bhargava also made it clear that no norms have been violated by Maruti in not getting minority shareholders’ consent before allowing SMC to take total control of the Gujarat plant. “The decision has been approved by the Maruti board of directors. How can shareholders expect to be consulted? The new company law requires a consultation only if majority shareholders are taking a decision which could be detrimental to minority shareholders of the company. I am saying this decision is hugely, repeat hugely, beneficial to Maruti’s investors,” Bhargava said. Ten things you need to know about the new company, Suzuki Motor Gujarat Pvt Ltd: 1) SMGPL will house manufacturing facility with capacity of up to 7.5 lakh units a year, equal to the current individual capacities of the Manesar and Gurgaon plants of Maruti. 2) It may need Rs 3000 crore investment and will come on stream by 2017. 3) Initially, only one lakh units will be made here. Startup capital for SMGPL is Rs 100 crore and will become operational by Aprl 1 with its headquarters in Ahmedabad. 4) It will make cars only for Maruti, will not sell to anyone else. 5) Cost of the cars from this plant to Maruti will include only cost of production actually incurred plus adequate cash to cover incremental capital expenditure needs. So net, net, cost of acquiring cars for Maruti should fall. SGMPL will not make any profit by selling cars to Maruti. 6) Maruti is sitting on Rs 7500 crore cash (net of taxes) and will be able to park these funds at higher interest rates or use them for expansion instead of pouring money into Gurajat 7) SMC chairman O Suzuki categorically denied any plans to increase stake in Maruti for now, now that his company is setting up a wholly owned arm. 8) New company will have no role in future product developments for Maruti, which will continue to happen in collaboration with SMC at the Rohtak facility 9) Through SMGPL, Maruti gets access to cheaper cars while retaining cash pile. Suzuki gets to park funds in India where rates of interest are far better than in Japan 10) Headquarters of SMGPL to be in Ahmedabad, it will have its own Managing Director and people at key positions who will all report to SMC.

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