Substantial changes in the country and its passenger car industry have prompted Maruti Suzuki India (MSI) to acquire Suzuki Motor Gujarat (SMG).
This contract manufacturing entity is wholly owned by Suzuki Motor and the book value for this buyout will be arrived at soon. As of July 31, the book value of the entity is around 12,755 crore.
R C Bhargava, Chairman, MSI, said the deal would be completed before March 31, 2024. “We are yet to decide on how to acquire it,” he added. The modalities of this acquisition will be decided in the forthcoming board meetings.
Maruti has a capacity of over two million cars and is moving towards doubling this by FY31. With a host of priorities relating to reduction of carbon footprint and powertrain technologies like EVs, hybrids, CNG, ethanol etc coexisting for a longer period, “we have to now consider various alternative technologies available in India.”
Issues relating to coordinating production and distribution, spare parts and vendors have fuelled the complexities further. Besides, the number of models and volumes have increased substantially, and the existing arrangement will not work, said Bhargava.
Managing this scale and complexity of production with multiple powertrains under different managements would pose several challenges, fuelling the decision to acquire SMG, he explained.
Maruti has, hence, decided to make an arrangement to move forward comfortably in the next decade and this will not be possible “if one-fourth of its production is with one company (SMG) - not managed and owned by MSI.”
Suzuki Japan and Maruti have decided to make all production and related activities under a single management. Accordingly, the contract manufacturing with SMG will be terminated by mutual consent, and MSI will acquire 100% equity of SMC in the Gujarat company, Bhargava said.
The arrangement will be beneficial in many ways due to the increased production volume, said Hisashi Takeuchi, MD & CEO, MSI. The new arrangement will also allow the Indian arm to carry out EV production and pave the way for acquiring more knowledge from Suzuki.
The battery plant and R&D will continue to remain with the Japanese parent company. Currently, MSI contributes to about 60% of SMC’s global volumes, making about 1.9 million units. “If a million is added, the share may increase by up to 70%,” Bhargava said. The royalty paid by MSI to SMC will not change, he added.
Q1FY24 Performance
In Q1FY24, the company sold 498,030 vehicles, registering a 6.4% growth compared to the same quarter last year. Sales in the domestic market stood at 434,812 units, up by 9.1%, and exports were at 63,218 units compared to 69,437 units in Q1FY23.
Shortage of electronic components in the quarter resulted in over 28,000 vehicles not being produced. Pending customer orders stood at about 355,000 vehicles at the end of the quarter.
On the issues pertaining to semiconductors, Bhargava affirmed that from now on, it will not be of “serious order.”
In Q1FY24, the company registered its highest-ever quarterly net sales of INR 308,45.2 crore against INR 25,286.3 crore in the same period last fiscal year. Due to larger sales volume, improved realisation, cost reduction efforts, and higher non-operating income, net profit rose to INR 2,485.1 crore from INR 1,012.8 crore in Q1FY24, up145.4%.
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