Maruti Suzuki approves equity share issue to parent Suzuki Motor Corp

Maruti Suzuki, India's top automaker by volume, announced on Tuesday that it had greenlit the issuance of equity shares to its parent company, Suzuki Motor Corporation. The move is aimed at funding the acquisition of the Gujarat plant from its Japanese parent.

The share allotment will boost Suzuki's stake in the Indian automaker by about 1.8%, Maruti's chief financial officer Ajay Seth said. Suzuki currently has a 56.48% stake in Maruti.

Last week, Maruti Suzuki revealed that the book value of the plant stood at Rs 127.55 billion ($1.54 billion). While the specifics of the deal, including the issue price and the number of shares, are yet to be finalised, the company stated that these details would be determined in a forthcoming board meeting.

Increased control over production activities

The decision to allocate preferential shares to Suzuki stems from its status as "the most beneficial option for minority shareholders and the company," as explained in a statement by Maruti.

Maruti Suzuki's acquisition of the Gujarat plant from Suzuki is set to enhance its control over production activities, including those related to electric vehicles. This move positions the company to make necessary adjustments based on market demand, according to RC Bhargava, Chairman of Maruti Suzuki.

The plant, originally owned by Suzuki and infused with approximately Rs 180 billion since 2014, is primarily utilised for car manufacturing on behalf of Maruti. Boasting an annual production capacity of 750,000 units, this facility has emerged as a strategic asset.

Maruti's recent deal announcement seeks to amplify its influence over production activities, particularly within the realm of electric vehicles (EVs). This arrangement empowers the company to adeptly tailor production to accommodate shifts in consumer demand, as told by Chairman RC Bhargava.

With an ambitious roadmap, Maruti aims to introduce six EV models by 2030. 

"With Maruti engineers taking over production at the plant, we will get a better understanding of EV manufacturing which will be important for the future," Bhargava said.

Following this transaction, Suzuki Motor Corp's ownership in Maruti Suzuki is anticipated to rise by approximately 4 per cent, as estimated by an analyst based in Mumbai.

Since its quarterly earnings report on July 31, Maruti Suzuki's shares have experienced a decline of around 2.5 per cent.

(With Reuters inputs)