What Suzuki Motor Gujarat acquisition means for Maruti Suzuki

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₹12,700 crore. “Based on our calculations, we see an earnings per share cut of 4-5% and RoCE reduction of 90 basis points (cash payout)/310 basis points (equity swap) in FY25," said analysts at Motilal Oswal Financial Services in a report on 31 July. RoCE is short for return on capital employed and one basis point is one-hundredth of a percentage point.

The mode of acquisition and the consideration for the transaction would be decided in a subsequent board meeting. Maruti intends to complete this transaction before the end of FY24. It noted that this acquisition would reduce complexities in managing multiple power trains under different management teams.

Analysts at HDFC Securities said that Maruti’s decision to acquire SMG has come as a major surprise. “While its impact is not material for Maruti, we are not sure about the rationale for the same. Simply put, if termination of this agreement provides synergy benefits for Maruti, why was this arrangement with SMG done in the first place?," said the HDFC report.

Of course, much also depends on how the efficiencies pan out in the long run and investors will watch that closely. Maruti announced its June quarter results on Monday. The company’s performance at the Ebitda level missed estimates.

Ebitda stands for earnings before interest, tax, depreciation, and amortization. True, the gross profit per vehicle was at a multi-quarter high at ₹176,600. But a rise in staff costs meant 120 basis points sequential fall in Ebitda margin to 9.2%.

However, employee costs included one-time expense of employee retention bonus and retiral benefits. Meanwhile, shares of Maruti have risen by nearly 17% in 2023 so far. Incremental volume from the recent launches would aid investor sentiments.