NEW DELHI (Reuters) - Maruti Suzuki India has won shareholder approval to buy its cars from a Gujarat plant to be funded by parent Suzuki Motor Corp which will allow the Indian company to invest its surplus cash in other parts of the business.
Nearly two years ago a group of Indian investors opposed the Gujarat plan in a rare example of shareholder activism, saying the contract allowed the Japanese parent rather than Maruti to reap the benefits of rising domestic sales in India.
India’s top-selling carmaker received 89.8 percent of minority shareholders’ votes in its favour, paving the way for production to start in Gujarat in early 2017, Maruti Chairman R.C. Bhargava said on Thursday.
The contract has not been radically changed but the company has consulted more widely with shareholders to explain the plan.
Suzuki will sell cars to Maruti at cost price.
The carmaker, which had 140 billion rupees ($2.1 billion) in surplus cash at end-March, is now planning to invest the money in boosting research and development and doubling the number of dealerships, Bhargava said.
A total investment of roughly 185 billion rupees ($2.8 billion) has been earmarked for the new plant, and the amount will be used to set up six production lines capable of producing 250,000 vehicles each.
New production lines at the Gujarat plant will be added as and when demand rises, which will also determine the pace of investment by Suzuki, said Bhargava.
“With this voting done people can now concentrate on going ahead and doing regular business,” Bhargava said. “My return on capital would be much, much higher now because the Gujarat project capital employed doesn’t enter into my calculation.”
Maruti, which accounts for about a third of its parent’s revenue, is facing growing competition in India with global carmakers launching feature-packed small cars that are pitted against its cheap, no-frills cars.
The carmaker, Maruti, whose market value surpassed that of Suzuki in July, has also struggled to get a foothold in the premium segment, where margins are higher.
($1 = 66.2800 Indian rupees)
Reporting by Aditi Shah; Editing by Sumeet Chatterjee and Keith Weir