Over the last one week, there have been reports that minority shareholders of Maruti Suzuki India Ltd (MSIL) are concerned about their future. The concerns emerge from the announcement that the Gujarat manufacturing plant of the company will be fully owned by a subsidiary (Suzuki Motor Gujarat, or SMG) of Japan’s Suzuki Motor Corp. SMG will sell the cars it makes to MSIL, a significant change from an earlier plan where the latter would have built the plant itself. Minority shareholders of MSIL think Suzuki’s move may affect the value of their holdings. However, the company says it will be beneficial for all. In an interview with Business Line , RC Bhargava, Chairman of MSIL, puts to rest these concerns. Edited excerpts:

How are you addressing shareholders’ concerns?

We are doing our best to address their concerns. Our people – Finance, Corporate General Manager – have been holding meetings with shareholders. They have heard their (shareholders’) concerns. I am not sure what more we can do, but the bottomline is that we are convinced that what we are doing is in the best interest of the company and its shareholders. The company will stand to benefit to an extent of several thousands crore as a result of this arrangement.

There were some issues around the transfer pricing also…

Before we sign any contract (manufacturing agreement), the document will be examined by lawyers and tax experts. It won’t be signed without following all the procedures. But at the end, who will gain from this deal? These details areyet to be worked out. They (SMG) will also bring in some extra amount beyond the initial ₹3,000 crore investments. Depending on how much is brought in and when, we will determine what will be the extent of any mark-up. In fact, we will try and keep the mark-up at such a level that MSIL’s profitability does not suffer in any way. The profit will all come to MSIL because the Gujarat plant is not supposed to make any profit or loss as we have said it is a ‘no-profit no-loss’ operation. It will not accumulate any surplus.

What will happen if Suzuki decides to take over MSIL, too, as a wholly-owned subsidiary?

There are procedures for that. SEBI has a procedure in which it lets a company make an open offer to the shareholders for delisting it (from stock exchanges), but that they (MSIL/SMC) can do at any time, not only with the Gujarat project. If any promoter or a company wants to acquire the company before delisting it, there are procedures that come under the law. That’s the only way to do it.

But why such a subsidiary (SMG) in Gujarat? Does it have to do anything with some labour wage issue compared to Haryana?

There is no wage issue here. We were willing to go this route because of the financial benefits and that’s the only reason. The whole dispute today, which is going on with the investors, is that their stakes of 44 per cent will not benefit out of it. Whereas, our view is that the company (MSIL) will change substantially in terms of financial benefits and the 44 per cent shareholders will get 44 per cent of the benefits (out of Gujarat plant). After some time, we will disclose the numbers, which we will calculate and firm up because those numbers need to be also confirmed by Suzuki. But what is certain is that it will run up to several thousands of crore rupees. Suzuki will also gain out of it because they will get 56 per cent of the profit (majority shares in MSIL). So, everyone will gain and I don’t know who will be the loser.

Is there any safeguard you are giving to minority shareholders?

I am not sure what safeguard we can give them right now, but when we do this agreement finally, it will spell out all the legal aspects. And, if Suzuki invests ₹3,000 or ₹5,000 crore in Gujarat, and if they don’t make profit over a period of time... who gets the benefits of theirs? Any money that Suzuki brings in (which is their money), and they are not making any profit of theirs, somebody has to get that money. And, that is the MSIL shareholders and Suzuki through MSIL.

By when will this agreement be signed?

The subsidiary in Gujarat was established on April 1 (or sometime around that time). It will be done by the Board’s agreement and then we will take time to go through all the legal processing. After that, the MSIL Board has to approve (post approval from shareholders) it and only then we can sign it. The company (SMG) will start by April 1, but this agreement on contract manufacturing will take some months before we sign it and we cannot do any manufacturing before 2017.

Who will decide on what car is manufactured at what plant?

We will have to decide that from time to time. We will decide what car to be made in Haryana or Gujarat as we have to buy back the car from there (Gujarat).

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