Maruti Suzuki to acquire Suzuki Motor Gujarat operation, terminate contract manufacturing

The Board of Directors of Maruti Suzuki on Monday approved the termination of the contract manufacturing agreement with Suzuki Motor Gujarat Private Limited (SMG) and exercising the option to acquire the shares of SMG from Suzuki Motor Corporation (SMC) subject to all legal and regulatory compliances including minority shareholders’ approval.

The mode of acquisition including consideration to be paid to SMC shall be decided in a subsequent Board Meeting. The transaction shall be completed after taking all the Government approvals, as required, under Foreign Exchange Management Act before 31st March 2024.

Speaking to media, Hisashi Takeuchi, MD of Maruti Suzuki says the market situation is changing rapidly, and Maruti Suzuki will be able to cater to ever changing needs quickly with this new arrangement.

“There are times, wherein we need to quickly ramp up or ramp down production of certain models based on market situation, those decisions can now be taken quickly. It will allow us to speed up the process once SMG will become part of MSIL system,” added Takeuchi.

R C Bhargava, Chairman, Maruti Suzuki says, the contract manufacturing agreement provides that Maruti Suzuki will acquire the shares at the book value of SMG - which stood at Rs 12,755 crore, but the exact contours will be shared post the next board meeting, where this proposal will be taken up.

Bhargava says the move has been necessitated by changing market environment and Maruti Suzuki is evolving its structure based on the changing dynamics. 

“The situation today is not the same as it was in 2014 when the structure of forming Suzuki Motor Gujarat was created. The volumes have increased, models have increased, the number of technologies have increased and all of this creates complications. Plus, we have to expand in the future. Hence the structure can't be the same as 2014, it would be rather sad, if management is not able to adjust its strategy, anybody who does not change with time, runs the risk of being obsolete,” Bhargava explained.

Post the arrangement, the cost of production may remain the same, but the scale will give the company the benefit of controlling the cost, Takeuchi said. 

With the growth of the Indian car market and export potential, Maruti Suzuki India Ltd (MSIL) would need to increase its production capacity to about 4 million cars per annum by 2030-31, almost double from current levels. This would happen over several locations, some of which are known and some being studied. On the other hand, given the carbon neutrality requirements, several powertrain technologies like EVs, Hybrids, CNG, Ethanol, etc. will co-exist for a reasonably long period of time. Managing this scale and complexity of production with multiple powertrains, under different managements, would pose several challenges.

The Board of Directors considered this and decided that for the purpose of efficiency in production and supply chain, it is best to bring all production-related activities under MSIL. Accordingly, the Board approved the termination of the contract manufacturing agreement and exercising the option to acquire the shares of Suzuki Motor Gujarat Pvt Ltd (SMG) from Suzuki Motor Corporation (SMC) subject to all legal and regulatory compliances including minority shareholders’ approval, Maruti said in an official statement. 

Presently, Suzuki Motor Corporation holds 100% equity capital of Suzuki Motor Gujarat. The acquisition of 100% equity capital by Maruti Suzuki India Limited (MSIL) from SMC is a related party transaction and shall be done according to the prevalent law and regulations, the company said in a statement to Bombay Stock Exchange. The Suzuki Motor Gujarat Unit was set up in FY-14 and it currently produces about 7.5 lakh units.

The turnover of Suzuki Motor Gujarat in the last financial year ended on 31st March 2023 was Rs 31,852 crore.

This does not include Suzuki Motor’s battery manufacturing plan, which is outside of Suzuki Motor Gujarat’s purview.

India at present accounts for 60% of Suzuki's global production. Once the new facility in Kharkhoda Haryana comes on stream at Maruti Suzuki, India is set to account for 68-70%.