Maruti to take reins of contract mfg firm

livemint.com:

NEW DELHI : Maruti Suzuki India Ltd (MSIL) on Monday said it has decided to buy out its contract manufacturing partner Suzuki Motor Gujarat (SMG) from parent Suzuki Motor Corp. (SMC) at a potential book value of ₹12,755 crore. India’s largest carmaker aims to complete the transaction by 31 March 2024, R.C.

Bhargava, the chairman of Maruti Suzuki, said. SMG, with 3,200 workers, has an annual capacity of 750,000 units, a fourth of MSIL’s 2.25 million capacity. The transaction is subject to regulatory clearances.

“In 2014, we had made a unique proposal to our shareholders that our Gujarat manufacturing facility will be set up by Suzuki Japan, and they’d set up a 100% owned subsidiary to make cars for MSIL," Bhargava said. “The contract manufacturing agreement was signed in 2015 and has worked well for the last eight years. But since then, the overall situation in the car industry and the country has changed substantially." “MSIL already has over 2 million units in capacity, which is moving towards 4 million by 2030.

Because of the imperative of reducing our carbon footprint, we are exploring many different alternative technologies, and our volumes and the number of models have increased substantially. So, the board of MSIL came to the conclusion that the contract manufacturing arrangement will not work satisfactorily. We need to find a reorganization that works for the next decade," Bhargava added.

In 2014, MSIL decided not to invest directly in a new manufacturing facility but invest its cash instead in its sales and marketing infrastructure. The transaction got the approval of minority shareholders, thanks to the provision that MSIL could obtain a stake in the factory at book value. Now, the same provision is likely to