To prepare itself to meet increasing demand for diesel vehicles, Maruti Suzuki India, on Tuesday, said it would merge engine and transmission maker Suzuki Powertrain with itself.
Subsequent to this merger, Japanese parent Suzuki Motor Corporation's (SMC) stake in Maruti Suzuki India (MSI) will go up to 56.2 per cent from 54.2 per cent due to a share swap agreement with the domestic car market leader to acquire Suzuki Powertrain India Ltd (SPIL).
SMC holds a 70 per cent stake in its subsidiary SPIL, while the balance is held by MSI.
“The merger promises multiple benefits, specially when we consider the increasing dieselisation of the Indian car market. With this, Maruti Suzuki will be able to bring all its diesel engine operations under a single management,” MSI Managing Director and CEO S. Nakanishi told reporters here.
This would help in bringing down costs and also providing more flexibility while meeting fluctuations in market demand, he added.
“With the SPIL facility, now being added to MSI, we can have a cohesive diesel strategy as it will provide synergies in finance and capital,” Mr. Nakanishi said.
Reacting to the announcement, shares of MSI closed 3.34 per cent up at Rs.1,146.30 apiece on the BSE.
Earlier, during the day, the board of directors of MSI approved the merger proposal of SPIL, which supplies 3 lakh diesel engines and transmissions every year to MSI.
As per the understanding, the swap ratio has been fixed at 1:70, which means SMC will receive one share of MSI of Rs.5 each for every 70 shares of Rs.10 each it holds in SPIL.
“It is expected that the necessary regulatory approvals and legal requirements for the merger may be completed by end-December. Once the merger is approved, the books of accounts of SPIL will be merged with MSI with effect from April 1, 2012,” the company said.
Mr. Nakanishi said SPIL's turnover stood at Rs.4,550 crore in the last fiscal with a net profit of Rs.150 crore.
MSI Chief Financial Officer Ajay Seth said: “SPIL has a debt of Rs.550 crore, which will now go into MSI's books.”
Commenting on the job scenario post this merger, MSI Managing Executive Officer (Administration) S. Y. Siddiqui said SPIL at present had 2,592 employees and “there are no plans to reduce jobs”.
About the government's proposal to levy an additional tax on diesel vehicles, Mr. Nakanishi said: “If it is imposed, the volumes will be down.” He, however, said there would be no impact on future investment by the company due to any such adverse taxation.
The company is investing Rs.1,700 crore to set up a diesel engine plant, with a total annual production capacity of 3 lakh units, at its Gurgaon facility by 2014.
On MSI's recent decision to cut production of petrol cars, he said: “Out of the total petrol engine capacity, we are utilising only 70 per cent.” The company had the capacity to roll out 11 lakh petrol cars every year, he added.
MSI's earlier estimate of selling 50,000 petrol cars less in 2012-13 might go up if the current price gap between petrol and diesel continued, he added.
Last week, MSI had said that it cut production of some petrol models, including the best selling Alto, by 8,000-8,500 units as sales of such cars had declined due to high fuel costs.
