Maruti Suzuki India will now pay royalty to its parent Suzuki Motor (Japan) in rupees instead of Japanese yen. This, according to analysts, will benefit both.

Since its inception, the Indian company has been paying royalty in yen.

Addressing shareholders at the company’s annual general meeting here on Thursday, RC Bhargava, Chairman of the Indian arm, said: “Royalty to Suzuki will now be paid in Indian rupee price and not yen, so that we won’t be affected by foreign exchange fluctuations.”

Puneet Gupta, Associate Director, IHS Automotive Sales, told BusinessLine that Maruti does not have to hedge any more as the royalty will be paid in rupees.

Since Suzuki will reinvest it in India, in the Gujarat plant, this will be a win-win situation for both, he added.

Maruti, he said, would save the extra amount it spends on hedging as well as on the forex loss converting rupees to yen, while Suzuki will save on converting yen to rupees while investing in the Gujarat plant.

But the major benefits of this move will be known only after the Gujarat plant starts in 2017, Gupta said, adding that by then the rupee may also have become stronger, with the Indian economy improving.

Another industry veteran, speaking on condition of anonymity, had similar thoughts. “Right now, it seems to be beneficial for both the companies, but everything will depend on when Suzuki starts production at the Gujarat plant.”

Thrust on research Sharing the company’s strategy for the next 30 years, Bhargava said Maruti is enhancing its research and development capabilities and playing a greater role in joint product development with Suzuki. This will also reduce the royalty payout, benefiting the Indian unit, he added.

“More and more R&D work will be done in India and royalty calculation will be based on work done here. Our expenditure on R&D will be rewarded in the form of reduced royalty,” he said at the AGM.

The research and development centre that the company is building in Rohtak, Haryana, will come up by 2017, with an investment of around ₹2,000 crore, Maruti had said earlier.

In the first quarter of the current fiscal year, the company had paid a royalty of ₹689 crore, which was 6.2 per cent of the net sales of the company.

The company expects the royalty paid to Suzuki to come down after the launch of its compact sports utility vehicle (SUV), as its engineers begin playing a bigger role in the joint development of future products.

SUV, LCV launch Bhargava said Maruti was not present in the SUV segment and Suzuki was aware of it. The company will launch an SUV early next year and a compact SUV will follow a year later. The company will also bring in a light commercial vehicle, he added.

“These two models (SUVs) will help us gain a sizeable market- share and also help us utilise our capacities fully. We will also bring a one-tonne LCV, which will compete with Tata Ace, Ashok Leyland’s Dost and Mahindra’s Gio.”

Gujarat plant On the Gujarat plant, Bhargava urged the shareholders to vote favourably to let Suzuki own and invest in the facility. The voting and approval by the minority shareholders is expected to take place in October as some of the minority shareholders were against Suzuki’s plans to own the upcoming plant in Gujarat.

Maruti Suzuki’s shares closed at ₹2,901.35 on the BSE on Thursday, down 0.29 per cent from the previous close.

Related Topics