Expect royalty to SMC in rupee on all models by 2025: Maruti

Maruti Suzuki India is likely to pay royalty to its Japanese parent Suzuki Motor Corp for all its models in rupee terms by 2025 which could lower the annual outgo.
MSI, which sells 15 models, currently pays royalty to SMC in Yen except for compact SUV Vitara Brezza.
"If you take a period of say next 7 to 8 years, most of our models would have changed... Let us say, by 2025, I would imagine that the royalty of all the models of Maruti would be in Rupee terms," Maruti Suzuki India Chairman R C Bhargava told reporters here.
In 2015, MSI had announced that it would start paying royalty to its parent Suzuki in rupee instead of yen for all new models starting with the Vitara Brezza which was launched last year.

The move was aimed at insulating the company from foreign exchange fluctuations, and thereby reducing average royalty rate to 5 per cent of net sales as compared to 5.6 to 6 per cent for the existing models, which were paid in yen.
For the fiscal 2016-17, the company had paid a total of Rs 3,848 crore at 5.8 per cent of net sales.

In the previous fiscal it stood at Rs 3,244 crore, 5.7 per cent of net sales.
"We sold about 70,000 units only of the Vitara Brezza in the fiscal out of the total 1.5 million and therefore had little impact on royalty outgo," Bhargava said.

He had earlier said the royalty rates for specific models would vary depending on contribution from Maruti in the development of the products but higher the contribution, lesser will be the rate.
For instance, the rate on Vitara Brezza is estimated to be around 4 per cent.
MSI has been ramping up its R&D centre in Manesar in order to play a bigger role in product development done in collaboration with Suzuki.