Maruti to seek minority shareholder approval for Gujarat plant

Passenger car manufacturer Maruti Suzuki has it would seek minority shareholder approval to source cars from a plant to be built in Gujarat by Japan's Suzuki Motor Company at a cost of USD 500 million.

With institutional shareholders opposed to the proposal, Maruti Suzuki, has after a recent board meeting, decided to give minority shareholders a chance to approve the decision, though this is not required by law. The company said in a statement that this is being done as an act of good corporate governance.

Shareholders, including institutional investors continue to maintain that sourcing cars from the Gujarat plant is an unfair activity, and have demanded that the company reconsider its plans to allow Japan's Suzuki Motor Co, which owns some 56 percent of Maruti,

Experts are of the view that minority shareholders stand to profit more if Maruti makes the cars itself at the Gujarat plant as it has traditionally done at its other plants and remains a manufacturing company.

In its statement, Maruti said that in the event that "both parties mutually agree to terminate the manufacturing agreement; the facilities of the Gujarat Sub (plant) would be transferred to Maruti Suzuki India Ltd at book value".

Maruti, whose shares have come under heavy pressure since the plan emerged in January, has two factories in Manesar and Gurgaon that produce up to 1.5 million vehicles a year.

Once completed, the Gujarat plant could turn out 100,000 cars a year initially, and an expected 1.5 million a year at a later stage.

Maruti is of the view that both the company and its investors will be winners in the long-term, but sceptical minority shareholders assert that the winners would be parent Suzuki which would obtain the gains from higher domestic sales.