Maruti to buy Suzuki plant in Gujarat with shares, not cash

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₹12,755 crore. Consequently, the unit will become a wholly-owned subsidiary of Maruti Suzuki, and its key management positions, some of which are currently held by Suzuki employees from Japan, will be taken over by the Indian team. With this deal, Maruti Suzuki will aim to enhance its operational and organizational efficiencies, and double its manufacturing capacity by consolidating production within a single management entity.

According to Maruti, the share swap approach will minimize adverse effects on earnings per share (EPS) and profits compared to a cash transaction, as it would have resulted in a loss of interest income. To be sure, Maruti currently has cash reserves of about ₹46,800 crore. The proposal for allotting preferential shares to the Japanese parent will be put to a vote before Maruti’s minority shareholders at an extraordinary general meeting (EGM) in the future, the company said in a regulatory filing.

Under a share-swap scenario, MSIL estimates a higher net profit each year until 2030-31, to over ₹1,400 crore at the end of 2030. Besides, it also expects higher earnings per share and dividend payouts with the share swap arrangement, relative to a cash buyout. The calculations are based on assumption of 12.5% cumulative profit growth over the next decade, coupled with a 7% interest income.

Suzuki has so far invested close to ₹18,000 crore in the Gujarat factory that can produce up to 750,000 cars per year. SMG’s contract manufacturing arrangement with Maruti operates on a no-profit, no-loss basis. On 1 August, Maruti announced its intention to terminate this arrangement, and secure full ownership of its contract manufacturing partner.