Maruti Suzuki seeks to allay concerns over Gujarat plant

Seeking to allay concerns over the proposed Gujarat plant, Maruti Suzuki India Ltd (MSIL) today said Suzuki Motor Corp's subsidiary in Gujarat would operate on the basis that while it would not make any losses, it would also not accumulate any cash surpluses.
Last month, Japan's Suzuki Motor Co (SMC) had said it will invest USD 488 million (about Rs 3,050 crore) in setting up a car factory in Gujarat by 2017, which was proposed by subsidiary Maruti Suzuki India.
This had led to investor concerns related to pricing, funding of capacity expansion in the proposed contract manufacturing arrangement.
"The Suzuki Motor Corporation's subsidiary in Gujarat would operate on the basis that while it would not make any losses, it would also not accumulate any cash surplus," MSIL informed the BSE.

The plant, which would be the first fully-owned factory of the Japanese giant, would have an initial capacity of 100,000 cars a year, all of which would be supplied to MSIL, as per the plan.
The company said: "The cost of production of vehicles, produced by sub (Gujarat plant) would be calculated in the identical manner to that followed by MSIL in Haryana and as would have been done if the Gujarat project has been executed by a 100 per cent subsidiary of MSIL."

It further said that the capex of Gujarat plant would be met by the depreciation amount available, amount generated as net surplus from the car pricing and from fresh infusion of equity by SMC.

"The capex need of the sub would be determined jointly by MSIL and the sub, consistent with the production needs of MSIL from the Gujarat project," the communique said, adding that this is being communicated to investors who had written to the company seeking more details.
It further added that if the contract manufacturing between its MSIL and Gujarat plant expires, then the plant would be transferred to it at a fair value.
"If the contract manufacturing agreement expires and in case is not extended by mutual consent, the assets of the Gujarat sub would be transferred to MSIL at a fair value to be determined by independent valuation," it said further.