MSI to decide on share issue to parent on 17 Oct

livemint.com:

NEW DELHI : The board of Maruti Suzuki India (MSI) Ltd, the country’s largest carmaker, will meet on 17 October to consider issuing preferential shares to parent Suzuki Motor Corp. to acquire its entire stake in Suzuki Motor Gujarat (SMG), the Indian carmaker told exchanges on Thursday. SMG, a contract manufacturer for Maruti Suzuki since 2014, has an annual production capacity of close to 750,000 units.

In July, Maruti Suzuki announced its intention to buy out Suzuki’s entire stake in SMG and terminate its manufacturing agreement with the Japanese parent to ‘simplify’ its operations as it prepares to rapidly install new capacities to manufacture vehicles with a variety of eco-friendly powertrains over the next decade. Maruti Suzuki said it will execute the transaction at a net book value of ₹12,755 crore through the allotment of preferential shares to Suzuki Motor, instead of paying for its stake in cash to minimize the adverse impact on earnings. Maruti Suzuki had a market capitalization of ₹3.19 trillion as of 12 October.

Suzuki Motor currently owns 56.48% of Maruti Suzuki. “The period from 2014 till now shows that Maruti not spending cash on the Gujarat plant enabled the company to become much stronger, and its price-to-earnings ratio increased from 21 to 33. Having cash reserves and maximizing profits has benefitted everyone, including shareholders.