Maruti’s Bhargava brushes aside concerns on EV project, says plans don’t go against interests of shareholder

All models produced by Suzuki’s Gujarat plant, including electric vehicles, would be sold by Maruti: MSI Chariman

All models produced by Suzuki’s Gujarat plant, including electric vehicles, would be sold by Maruti: MSI Chariman

Maruti Suzuki chairman RC Bhargava, who brushed aside the concerns of proxy consultancy IiAS over Suzuki’s investment in the EV project, claimed Thursday that there was nothing against the interests of the company and its shareholders, as the investment was part of a previous arrangement.

Facing criticism from IiAS, Mr Bhargava noted that all models produced by Suzuki Motor Gujarat (SMG), including electric vehicles (EVs), will eventually be sold in the market by Maruti Suzuki India (MSI).

IiAS has raised serious questions about the Suzuki Motor Corporation (SMC) decision to invest directly in the EV project rather than have MSI do it.

“This proxy firm had also opposed the establishment of the Suzuki Motor factory in Gujarat. Shareholders overwhelmingly rejected the proxy firm’s advice. The vote was overwhelmingly in favor of this project. within that project, there has been no new agreement,” Mr Bhargava told PTI.

He said the deal had already been approved by shareholders and there was nothing new to object to.

“It’s already a foregone conclusion, this is not new. I don’t know why they (IiAS) oppose it. The cars made in Gujarat will be delivered to Maruti for a fee, we will sell the car, that is the scheme approved in 2014, so what’s new here,” he noted.

Speaking about MSI’s plans to introduce an electric car by 2025, Mr Bhargava said: “They (SMG) will produce it in Gujarat and sell it by 2025”.

He went on to say, “There are so many models that SMG produces. They have a production capacity of 7.5 lakh units. So this (EV) is part of that.”

When asked if the EV model would also be part of the same agreement with SMG, Mr Bhargava said: “Yes.. nothing was said that the car that would be produced there (SMG) would only be with combustion engines.. . Every car produced there is sold by us”.

SMG, a 100% subsidiary of SMC, supplies cars exclusively to MSI.

On March 20, SMC announced that it would invest about 150 billion yen (about ₹10,445 crore) in local production of battery electric vehicles (BEV) and batteries in Gujarat by 2026.

To this end, the company has signed a Memorandum of Understanding (MoU) with the government of Gujarat.

Under the MoU, SMG will invest ₹7,300 crore by 2026 to build a BEV battery plant on the land adjacent to SMG’s existing plant.

IiAS (Institutional Investor Advisory Services) noted in its report that the bigger problem remains this inherent conflict of interest – between owning a wholly owned subsidiary and having a publicly traded company in the same market.

“These structures make it easier for MNCs to hollow out the publicly traded subsidiary and reduce its value. Maruti shareholders need to work constructively with SMC to understand how this structure will work. By asking the right questions now, their hopefully be built into the project design,” it reads.

For Maruti, his future could be at stake, the consultancy noted, adding that the company must determine its role in the EV business.

A consultation with its stakeholders – such as in setting up the Gujarat factory – will enable Maruti to create a mutually beneficial deal structure and remain relevant, it noted.

“Will Maruti shareholders benefit from SMC’s decision to enter the EV space in India? This is a question Maruti shareholders should ask SMC,” it noted in its report.

IiAS had also opposed SMC’s decision to establish a wholly owned subsidiary in Gujarat on land allocated to Maruti.

“This issue is reoccurring. SMG will invest in setting up the EV factory. SMC will claim that this will save Maruti shareholders the capital, but Maruti had Rs 30 billion in cash and low debt on its balance sheet as of September 30, 2021 – Investing Rs 104.45 billion over the project years is unlikely to highlight the financial profile of Maruti,” it noted.

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