Maruti Suzuki to acquire Suzuki's Gujarat production unit; Q1 profit doubles to Rs 2,525 cr

Maruti Suzuki India on Monday said it will acquire the Gujarat-based production facility of its parent firm Suzuki Motor Corporation to reduce complexity and bring all manufacturing-related activities in the country under one entity.

India's largest passenger vehicle maker, which saw its consolidated net profit jump over two-fold to Rs 2,525 crore in the April-June quarter riding on better realisation from the sale of bigger cars, said its board has approved the termination of the contract manufacturing agreement with Suzuki Motor Gujarat, a wholly owned subsidiary of Japanese Suzuki Motor Corp (SMC).

Suzuki Motor Gujarat (SMG) supplies its entire production exclusively to Maruti Suzuki India.

The company's board also approved to exercise the option to acquire SMG stake from SMC subject to all legal and regulatory compliances including minority shareholders' approval.

SMG, which was incorporated in 2014, currently has a production facility in Gujarat with an installed capacity of 7.5 lakh units per annum.

In a virtual press conference, MSI Chairman RC Bhargava said the arrangement worked well for the last 8-9 years but with changes in the overall industry dynamics, it was important for the company to come up with changes to steer growth in the next decade.

He noted that the company is now moving towards 40 lakh production capacity by 2030-31 in order to cater to the enhanced demand for its products in the market.

Bhargava said the company is also looking at various alternative technologies, including the roll-out of its first battery electric vehicle in 2024-25.

"Because of all this the issue of co-ordinating production, distribution and spare parts becomes more complex," Bhargava said.

With an enhanced model portfolio, the company has come to a conclusion that it has to come up with arrangements that would be beneficial for the company in the next ten years, he noted.

"So Maruti, SMG, and Suzuki Japan discussed this matter and came to a conclusion that it would be better for Maruti Suzuki if we could now ensure that all the production and production-related activities of any kind are brought under a single management," Bhargava said.

He noted that the arrangement would have no impact on the customer as well as the shareholders.

When asked about the expected purchase amount, Bhargava said: "At this stage, we can only say that the contract manufacturing agreement provides that Maruti will acquire shares at the book value of SMC. That book value last known was at around Rs 12,000 crore.

The auto major expects to complete the transaction by March 31, 2024, he said.

The mode of acquisition including consideration to be paid to SMC shall be decided in a subsequent board meeting.

SMG was incorporated on March 31, 2014.

Initially, the Gujarat plant was proposed to be owned by MSI but the plan was changed later with SMC announcing that it would invest USD 488 million to build the plant.

The plan was opposed by the institutional investors forcing the company to seek minority shareholders approval on the matter.

MSI's revenue from operations increased to Rs 32,338 crore in the April-June quarter from Rs 26,512 crore in the year-ago period.

The automaker said it sold a total of 4,98,030 vehicles in the first quarter, up 6.4 per cent, as compared with the same period of the previous year.

Sales in the domestic market stood at 4,34,812 units, up by 9.1 per cent over that in the first quarter of the 2022-23 fiscal. Exports stood at 63,218 units in the April-June quarter, as compared with 69,437 units in the year-ago period.

MSI noted that a shortage of electronic components in the first quarter resulted in a production loss of over 28,000 vehicles.

Bhargava noted that the chip crisis is abating and the company does not expect to face serious problems going forward for the rest of the year.

The company's pending customer orders stood at about 3,55,000 units at the end of the first quarter.

Maruti Suzuki shares on Monday ended 1.56 per cent up at Rs 9,819.55 apiece on the BSE.