Maruti Suzuki India Ltd (MSIL) Wednesday said that if the contract manufacturing agreement between itself and Suzuki Motor Gujarat expires and in case not extended by mutual consent, the assets of the Gujarat subsidiary would be transferred to MSIL at a fair value to be determined by independent valuation.
MSIL clarified in a statement that the proposed Gujarat plant by wholly owned subsidiary of Japanese Suzuki Motor Corporation would sell the cars at a lower price than its own ex-factory sale price.
Suzuki Motor Corporation recently decided to take over MSIL’s project in Gujarat and invest in that directly. The Gujarat plant would be a contract manufacturer for MSIL. The Japanese company would invest around $488 million in the Gujarat plant.
The decision raised concerns amongst institutional shareholders who had written to MSIL seeking clarifications.
Originally it was MSIL that would have set up the Gujarat plant.
According to MSIL’s statement, Suzuki Motor Corporation’s Gujarat subsidiary “would operate on the basis that while it would not make any losses, it would also not accumulate any cash surpluses”.
The Gujarat subsidiary’s production cost would be “calculated in an identical manner” as that followed by MSIL in Haryana. The cost will not include any return on investment and profit, MSIL said.
According to MSIL, the capital expenditure needs of the Gujarat subsidiary would be met by: (i) the depreciation amount available with the subsidiary (ii) by an amount generated as net surplus from the car pricing and (iii) by Suzuki Motor Corporation infusing fresh equity, to the extent necessary.
The statement said the Gujarat subsidiary would sell the cars at a price which will be lower that the price at which MSIL would sell its cars to its dealers.
The Gujarat subsidiary would determine its capital expenditure needs jointly with MSIL consistent with the production needs of the latter.