Maruti investors may oppose Suzuki's Gujarat plant ownership

More of Maruti Suzuki's shareholders may be joining forces against what they see as the Japanese parent's intransigence over the new plant in Gujarat.

MUMBAI: More of Maruti Suzuki's shareholders may be joining forces against what they see as the Japanese parent's intransigence over the new plant in Gujarat. Suzuki has said the Japanese company will own the factory with production being earmarked for the local unit as this will shield it from the need to lock up its own funds. Stakeholders on the other hand fail to see how this benefits India's largest car maker by volume.

Mutual fund houses and insurance companies are planning to unite against the decision, said people aware of the development.

ET learns that the number of institutional investors opposing the move may have increased to as many as 16. Earlier in February, leading mutual fund houses run by HDFC Bank, ICICI Prudential, Reliance Capital, UTI, State Bank of India, Axis Bank and DSP Blackrock had expressed their disquiet over Maruti Suzuki being reduced to a "distribution company" from a manufacturer, hence leading to "significant PE de-rating".

A Maruti spokesperson confirmed the development and said "we are regularly communicating with our investors" to address concerns.

Minority shareholders of Maruti Suzuki were taken aback when the board announced that its Gujarat plant will be set up by a 100% subsidiary of Suzuki Motor Co on January 28. All cars manufactured at the Gujarat plant would be purchased by Maruti at cost plus some margin sufficient to fund the incremental capital expenditure at the Gujarat plant.

Institutional Investor Advisory Services (IIAS), a proxy investor advisory firm, said Maruti had taken advantage of regulatory ambiguity, as certain sections of the new Companies Act seem to conflict with each other. Maruti may therefore not need to take minority shareholders' approval for the Gujarat plan. The Maruti spokesperson, however, rejected this contention. "This is incorrect and there is no such intention," the person said.

Minority shareholders should communicate their unhappiness about the plan to Maruti's board, or take up the matter with the Securities and Exchange Board of India (Sebi) and the Ministry of Corporate Affairs (MCA), as the company begins to strategically shift its business model from manufacturing to distribution, IIAS said.

JN Gupta, who runs proxy advisory firm SES, said stakeholders should question the decision."We believe that Maruti, through its recent statement, is trying to pull the wool over investors' eyes," said Gupta, also a former executive director of Sebi. "The statement by (Maruti chairman) RC Bhargava has reinforced our concern. Asking shareholders to take legal action if they had issues is no sign of good governance."

Despite concerns, Maruti's share price has jumped 13% in the last five trading sessions, driven by buy calls from foreign brokerages. The stock closed at 1,801 on Monday.




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