Maruti Suzuki approves key contracts for Gujarat plant

The company's board approved contract manufacturing agreement for 30 years proposed to be signed with Suzuki Motor Gujarat for upcoming plant in Gujarat

Automobile major Maruti Suzuki India (MSIL) on Saturday said that it has approved key contracts that are to be entered into with a fully owned subsidiary of Suzuki Motor Corp for erecting the new Gujarat plant.

The company informed the Bombay Stock Exchange (BSE) that its board of directors in a meeting held on October 1 approved the contract manufacturing agreement and the lease deed.

Both these key contracts are proposed to be signed between MSIL and Suzuki Motor Corp's fully owned subsidiary Suzuki Motor Gujarat (SMG).

The agreements are expected to be signed after the approval of minority shareholders of MSIL has been sought.

"The board of directors has approved the contract manufacturing agreement and the lease deed proposed to be signed by the company with SMG subject to this arrangement being approved by the minority shareholders of MSIL and regulatory approvals, if any," the company said in a regulatory filing.

The approved contract manufacturing agreement states that "This agreement shall continue for a period of 15 years, to be automatically extended for a further period of 15 years."

"After the expiry of an aggregate period of 30 years from the commencement date, MSIL and SMG may mutually discuss and agree to extend the period of this agreement."

The contract mandates that both MSIL and SMG jointly establish a coordination committee, which will oversee the implementation and operation of the Gujarat project.

Under the agreement, the sales price of products for SMG to MSIL shall be determined by both the companies under mutual consent for each financial year.

The prices, according to MSIL will be decided on the basis that SMG "does not have any profits or losses at the end of any financial year."

Furthermore, the agreement elucidates that MSIL will provide manpower to SMG for support, advice and guidance in the manufacture, assembly, purchasing, testing, inspection, quality control and packaging of the products.

MSIL had envisaged the Gujarat plant to expand its manufacturing capacity on the basis of projections regarding the potential growth of the automobile industry in India.

In 2011 the MSIL board approved the purchase of land in Gujarat for the new plant and in the next year entered into a state support agreement for the establishment of the integrated manufacturing facility.

The company is expected to go in for a minority shareholders' vote on its plans to let Suzuki Motor Corp own the upcoming Gujarat manufacturing plant.