India's biggest carmaker, Maruti Suzuki India Ltd will issue shares worth ₹12,841 crore to its Japanese parent Suzuki Motor Corporation (SMC) to acquire 100% stake in the latter's Gujarat plant.
The carmaker will issue 12.32 million equity shares to SMC to acquire Suzuki Motor Gujarat (SMG), at a price of ₹10,420.85 each, a 2.7% discount to the stock's closing price on Monday. SMG is a wholly-owned subsidiary of SMC.
Following the allotment of shares, Suzuki Motor Corporation's stake in Maruti will increase to 58.19% from 56.48% currently.
The acquisition comes at a time when Maruti Suzuki is looking to increase its production capacity to about 4 million cars per annum by 2030-31, almost double from current levels. In August, the company's board approved the termination of the contract manufacturing agreement (CMA) with Suzuki Motor Corporation to bring all production-related activities under single management.
"The CMA with Suzuki Motor was signed in 2015. In the next 10 years, the existing arrangement is not going to work satisfactorily. If there is a production of almost a quarter of our total by one company which is not managed by Maruti Suzuki, then there will be complications in the whole management structure going forward," Maruti Suzuki chairman RC Bhargava had said earlier.
Given the carbon neutrality requirements, several powertrain technologies like EVs, hybrids, CNG, ethanol etc. will co-exist for a reasonably long period of time and managing this scale and complexity of production with multiple powertrains, under different managements, would pose several challenges, the carmaker says in a stock exchange filing.
"The board 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 the company," it adds.
Maruti Suzuki will manufacture electric vehicles at its Gujarat plant, which is close to SMC's battery unit in the western state. The automaker plans to launch six new EVs by 2030-31. "EV production will now be done by MSIL and not by SMG. Our people will get involved in electric vehicle production. In the long term, they will acquire much more knowledge and expertise in this area than they would have done otherwise," Bhargava had said.
The company's board evaluated the two options for acquiring the SMC equity in SMG: payment in cash and the issue of MSIL equity shares on a preferential allotment basis. The impact of both options on the profitability of Maruti Suzuki, the earnings per share and the dividend payment to shareholders was considered for each year up to 2031. The board concluded that the option of acquiring SMG shares by issuing Maruti Suzuki equity shares to SMC would be beneficial to minority shareholders and to MSIL.
Shares of Maruti Suzuki were trading flat on Tuesday at ₹10,728 per share on the BSE.
