Maruti-Suzuki Gujarat Manufacturing Plant: Anatomy Of The Arrangement

By Ganesh

Published: Saturday, June 7, 2014, 12:42 [IST]

Yesterday we told you that Maruti Suzuki would start a roadshow this month to convince investors about the benefits of allowing parent company Suzuki to set up the manufacturing facility in Gujarat.

Maruti Suzuki has now filed a presentation to the BSE which highlights some important and interesting facts which explain how the entire arrangement between the Japanese company and its Indian subsidiary will work out. Following are the points.

The Gujarat manufacturing facility will be set up by Suzuki Motor Corporation at an estimated cost of INR 18,500 crore.

The new plant will eventually have an annual production capacity of 1.5 million units. The same as capacity of its facilities at Manesar and Gurgaon.

The new facility will be operated by Suzuki Motor Gujarat (SMG), a fully owned subsidiary of Suzuki Motor Corporation (SMC).

The factory will sell its products to Maruti Suzuki India Ltd. (MSIL) at cost price and will not incur any loss or make any profit at the end of a financial year.

In case profit is made or loss is incurred, the same will be offset by increasing or decreasing sale price to MSIL in the following financial year.

SMG will continue to supply spare parts for models discontinued by MSIL until considerable required.

MSIL will have contract manufacturing agreement with SMG, initially for 15 years, which will be automatically extended to another 15 years upon mutual consent. After the completion of the 30 year term, the contract can further be extended if both parties agree.

MSIL is expected to save an estimated INR 10,500 crore in the first 15 years by not investing in the new facility. This was calculated by considering post-tax return of 8.5 per cent per annum throughout the period from the savings.