Maruti Suzuki to buy SMC's Gujarat plant in share swap deal

Maruti Suzuki India Ltd (MSIL) will acquire a 100% stake in Suzuki Motor Gujarat from its parent Suzuki Motor Corporation as it looks to roll out its first electric vehicle by 2025.

Following the acquisition, Japanese-owned Suzuki Motor Corporation's stake in MSIL is expected to increase from 56.48% currently to 58.28%.

The company's board evaluated the two options for acquiring the SMC equity in SMG: payment in cash and the issue of MSIL equity shares on a preferential allotment basis. The impact of both options on the profitability of Maruti Suzuki, the earnings per share and the dividend payment to shareholders was considered for each year up to 2031, the carmaker says in a regulatory filing. The board concluded that the option of acquiring SMG shares by issue of Maruti Suzuki equity shares to SMC would be beneficial to minority shareholders and to MSIL.

This comes a week after India's largest carmaker approved the termination of the contract manufacturing agreement with Suzuki Motor Corporation to bring efficiency to production and supply chain. The agreement

The carmaker will produce electric vehicles at its Gujarat plant, which is close to SMC's battery unit in the western state. The acquisition also assumes significance as Maruti Suzuki is looking to export 7.5 lakh cars by the end of the decade. A manufacturing plant closer to some of the country's biggest ports is likely to aid exports.

"EV production will now be done by MSIL and not by SMG. Our people will get involved in electric vehicle production. In the long term, they will acquire much more knowledge and expertise in this area than they would have done otherwise," MSIL chairman RC Bhargava had said in a press conference earlier.

The carmaker, while disclosing the reason for opting for a share swap deal, assumed its profit after tax would grow at 12.5% each year. "Profit after tax of MSIL would be higher in the share swap option in each year increasing by over ₹1,400 crore in 2030-31," it says. "The EPS would be higher in the swap option starting from ₹7 per share and going up to ₹20 per share in 2030-31," it adds. The PAT figures should not be taken as MSIL's projections for profit, says Maruti Suzuki.

The swap ratio will be based on Suzuki Motor Gujarat's net book value of around ₹12,755 crore at the end of FY23.

Cash profit would have been lower because of loss of interest income, it says. The difference between swap and cash profit would occur under different growth rates of profit also, the carmaker adds.

"The dividend payable, with the same pay-out ratio, would be higher in the swap option. This is primarily because in the swap option while there is a continued additional earning of interest income, the equity dilution is very low," it says.

The company will seek approval of minority shareholders at an extraordinary general meeting (EGM) or through a postal ballot on a date to be fixed for terminating the contract manufacturing agreement, acquiring SMG shares from SMC and approving this acquisition by issue of MSIL equity shares equal to the book value of SMG, the filing notes.

The share swap is expected to complete by FY24. Following the buyout, MSIL management will gradually take over the Gujarat plant.