Decision on Gujarat plant 'right': RC Bhargava

Maruti Suzuki has said the decision to transfer the proposed Gujarat plant to Suzuki was "right" and would not impact its manufacturing activities even as the auto major is facing criticism from shareholders.

The country's largest car maker's latest assertion comes in the wake of seven major fund houses, who are shareholders, raising red flag over the planned transfer of Gujarat manufacturing plant to Japanese parent Suzuki Motor Co.

"We are convinced that what we are doing is the right thing. We are also answering anybody who has any questions and doubts and we will continue to make efforts in that direction and that's all we can do," Maruti Suzuki India (MSI) chairman R C Bhargava told PTI.

Besides fearing that such a move could make Maruti Suzuki merely a "marketing firm", the fund houses including ICICI Prudential MF, Reliance MF and UTI MF, also fear that royalty payments to the Japanese firm would see a substantial spurt.

"We have always been a marketing company. We assemble, mark my words assemble 1.2 million cars at the moment. But remember in this assembly of 1.2 million cars, 70 per cent of the manufacturing is done by the vendors and not by us. And in any case 1.5 million units will be continued to be produced in Gurgaon and Manesar (together), so it's not if all our production is outsourced," Mr Bhargava said.

On concerns raised by the fund houses that there could be a hike in royalty payment by Maruti to its Japanese parent, Mr Bhargava said: "They will not get any more royalty than what they are getting (now). The same system will continue".

As per the fund houses, the parent firm already has Rs 7,000 crore as royalty, 5.7 per cent of sales, and in the next four years, another royalty payment worth Rs 8,500 crore would be made.

According to them, with this pace and assuming a 15 per cent growth in annual sales over the next 20 years, MSI would be paying a royalty of Rs 41,900 crore.

The seven fund houses together hold 3.93 per cent stake in MSI, while 6.93 per cent stake is held by state-run LIC, which has also sought certain clarifications from the company on the Gujarat plant matter.

The decision to change the plant ownership was approved by the boards of Suzuki Motor Co and MSI, in which the Japanese firm held a 56.21 per cent stake on December 31, 2013.

As per the arrangement, the parent company would invest in the plant through wholly-owned unit Suzuki Motor Gujarat Pvt Ltd, which will manufacture vehicles exclusively for MSI.

Last month, mutual fund houses had written a letter to Mr Bhargava highlighting investor concerns arising from the deal.

The fund houses in the letter had asked MSIL to think again over the decision as the same is clearly "neither fair nor in the interest of shareholders".

In 2012, MSI had announced to invest Rs 4,000 crore to set up its third plant on a 700-acre site near Mehsana by 2015-16 with a capacity of 2.5 lakh units in the first phase.

Last year, the company said the plant had been delayed due to the slowdown in the automotive market.