Why You Must Keep Maruti Suzuki on Your Watchlist?

When you think of cars in India, the very first name that springs to mind is Maruti Suzuki India (MSIL). But here’s the exciting news that’s making the automotive world sit up and take notice: On the last day of July 2023, MSIL dropped a bombshell announcement that’s set to reshape the future of the industry.

Acquisition

MSIL, the undisputed heavyweight in the Indian car scene, is all set to acquire a 100% stake in Suzuki Motors Gujarat Pvt Ltd (SMG), a subsidiary of Suzuki Motors Corporation, Japan (SMC). Located in the vibrant state of Gujarat, SMG boasts a state-of-the-art manufacturing facility in Hansalpur with the ability to churn out a whopping 7.5 lakh vehicles every year, spread across three assembly lines.

But that’s not all; there’s a plot twist. SMG has an exclusive contract manufacturing agreement with MSIL, which means it cranks out vehicles and sells them to MSIL at cost. When you consider MSIL’s already impressive production capacity of 15 lakh vehicles annually, this acquisition brings their combined potential to a staggering 22.5 lakhs per year.

Now, here’s the kicker – SMC is not just a distant relative; it’s also the promoter company of MSIL, holding a substantial 56.48% stake in the company as of July 2023. With the Indian car market flourishing and an increasing appetite for exports, MSIL’s leadership recognized that managing such a colossal production scale with multiple powertrains under separate management could be a herculean challenge. Their grand vision of reaching 40 lakh vehicles a year in the next 7-8 years demanded an innovative solution.

Recognizing the need to stay ahead of the fierce competition in the ever-evolving automobile industry, SMC decided to pivot towards research and development in emerging technologies. As they provide the vital tech for manufacturing CNG, hybrid, ethanol, and next-gen electric vehicles to MSIL, this shift is pivotal.

To streamline operations and foster innovation, MSIL’s Board of Directors gave the green light to terminate the contract manufacturing agreement with SMG. This strategic move simplifies the holding structure, ensuring that multiple powertrains can now be managed under the capable umbrella of MSIL. It’s a leap towards making the production process more efficient and innovation-focused.

And, as a result of this transformative acquisition, MSIL will wave goodbye to the exclusive contract manufacturing agreement with SMG, contingent upon regulatory and shareholder approvals.

Here’s the cherry on top: MSIL is gearing up to issue fresh equity shares to SMC in exchange for the full acquisition of SMG. The exciting part? No cash will change hands in this transaction. The nitty-gritty details, including the number of shares and terms and conditions, are still under wraps, but they promise to be a topic of great discussion when unveiled in a future Board meeting. These details will be presented to the shareholders for their approval.

Board Meeting

As we speak, the stage is set for a pivotal Board meeting on the 17th of October, 2023. On the agenda is the proposal to issue equity shares to SMC through preferential allotment, a move that’ll settle the acquisition of SMC’s entire equity stake in Suzuki Motor Gujarat Private Limited. All of this is, of course, subject to the approval of the company’s members via a Postal Ballot and adherence to all legal and regulatory compliances.

So, fasten your seatbelts and keep a close watch on this auto giant. The road ahead is full of exciting twists and turns that will reshape the landscape of the Indian car industry.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.