Maruti Suzuki has announced it will acquire Suzuki Motor Gujarat (SMG) from its parent company, Suzuki Motor Corporation (SMC). The acquisition is subject to all legal and regulatory compliances, including minority shareholders’ approval.
The move is seen as a way for Maruti Suzuki to consolidate its production capabilities and improve efficiency. SMG is a wholly-owned subsidiary of SMC and currently produces about 7.5 lakh units per year.
MD of Maruti Suzuki India, Hisashi Takeuchi
Key Points
- Maruti Suzuki India Limited (MSIL) has decided to terminate the contract manufacturing agreement with Suzuki Motor Gujarat Private Limited (SMG).
- MSIL will exercise its option to acquire the shares of SMG from Suzuki Motor Corporation (SMC).
- It is subject to all legal and regulatory compliances, including minority shareholders’ approval.
- The exact mode of acquisition and the consideration to be paid to SMC will be decided in a subsequent Board Meeting.
- The transaction is expected to be completed after obtaining all necessary government approvals under the Foreign Exchange Management Act before 31st March 2024.
- The decision to acquire SMG is motivated by the rapidly changing market situation, which requires MSIL to be more agile in ramping up or down production based on market demands.
- The cost of production may remain the same post-arrangement, but the scale will allow MSIL to control costs more effectively.
Key points continue
- The growth of the Indian car market and export potential requires MSIL to increase its production capacity to about 4 million cars per annum by 2030-31.
- MSIL aims to bring all production-related activities under its umbrella for efficiency in production and supply chain management.
- Currently, Suzuki Motor Corporation holds 100% equity capital of Suzuki Motor Gujarat. The acquisition by MSIL from SMC is considered a related party transaction and will be done following prevalent laws and regulations.
- Suzuki Motor Gujarat’s turnover in the last financial year ended on 31st March 2023 was Rs 31,852 crore.
- The acquisition does not include Suzuki Motor’s battery manufacturing plant, as it is outside the purview of Suzuki Motor Gujarat.
- Presently, India accounts for 60% of Suzuki’s global production, and with the new facility in Kharkhoda Haryana, this is expected to increase to 68-70%.
Conclusion
Maruti Suzuki’s acquisition of Suzuki Motor Gujarat is a strategic move that will help the company to consolidate its production capabilities, improve efficiency, and increase production capacity. The acquisition is expected to be completed by March 31, 2024.
It is seen as a positive move by the market, and the stock price of Maruti Suzuki has risen in the days since the announcement. The acquisition is likely to benefit Maruti Suzuki in a number of ways, including:
- Efficiency expected to increase: By bringing all of its production-related activities under one roof, Maruti Suzuki will be able to better manage its supply chain and respond more quickly to changing market demands.
- Increased production capacity: The acquisition will allow Maruti Suzuki to increase its production capacity to 4 million cars per annum by 2030-31. This will help the company to meet the growing demand for its products in India and abroad.
- Improved profitability: It will lead to improved profitability for Maruti Suzuki by reducing costs and increasing efficiency.
