Along with it’s Q1 FY24 quarterly results, Maruti Suzuki India (MSI) has announced acquisition of it’s contract manufacturing facility, Suzuki Motor Gujarat Private Limited (SMG) from Suzuki Motor Corporation (SMC).
- In 2014, MSI had taken shareholders approval to allow SMC set up SMG as a 100% subsidiary that will contract manufacture for MSI.
- In line with the said approval, option was kept open for MSI to acquire SMG subsequently at book value from SMC. This option is now being exercised by MSI.
- Book value of SMG is estimated at Rs 12,775 cr as on March 31, 2023
- Mode of consideration (cash or shares or both) to be paid to SMC will be decided in subsequent Board meeting.
- Acquisition is expected to be completed by March 31, 2024
Rationale for acquisition
MSI’s current annual capacity is 2.25 mn units. Company estimates the need to be 4mn units annually by 2030-31.
SMG’s current capacity is 7.5 lakh units.
MSI wants to acquire SMG so as to bring in all the capacity directly under own control instead of letting it operate like a contract manufacturer.
Interesting point to note is MSI on it’s own is also undertaking capacity expansion and expects to add 2 mn units over period.
Besides, SMC recently had also announced significant investments into the EV ecosystem at SMG (about Rs 10,400 cr). This deal may mean that MSI would also be funding that along with the above consideration payable to SMC.
Overall, it seems that given the current bullishness in the Indian car industry, SMC has decided to cash out and reduce it’s future direct commitments. It’s India play anyways would continue; being 56.48% owner of MSI.
As per the clarifications on the quarterly call –
For ease of reference, Rs 10,400 cr plans announced by SMC were –
Hence, MSI will not be funding the above Rs 7,300 cr and will only be responsible for Rs 3,100 cr (which may further differ as per it’s own EV plans).
Maruti has decided to issue shares as consideration to Suzuki instead of paying cash. This is despite Maruti having excess liquidity of Rs 46,000 cr as at June 30, 2023.
As per the Company, this approach will be more value accretive for the shareholders.
The preferential share allotment will see Suzuki’s stake increase from 56.4% to 58.3%
The shares will be issued at a price of Rs 10,420.85 per share. This is a 2.6% discount to the automaker’s previous closing price.
The total value of the shares being issued to Suzuki Motor Corp. is Rs 12,820 crore.
Post the preferential issue of shares, Suzuki’s shareholding will go up to 58.19% from 56.48% earlier.