Maruti fails to allay concerns over Suzuki India plant, shares sink

MUMBAI (Reuters) - Shares of Maruti Suzuki India Ltd fell as much as 5.5 percent on Friday, after the carmaker sought to allay investor concerns over its plan to source cars from a plant to be built by its parent Suzuki Motor in Gujarat.

A group of heavyweight fund managers holding nearly 4 percent of Maruti's stock had urged it to re-think the plan in a February 13 letter to the company's chairman, saying minority shareholders would be better off if Maruti made the cars itself.

Maruti, India's top carmaker, in a statement late Wednesday provided details on pricing and funding of capacity expansion in the proposed contract manufacturing arrangement with Suzuki, which owns 56 percent of Maruti.

Maruti shares were down 5 percent at 1,581 rupees by 0652 GMT. Some analysts said the statement fell short of adequately justifying the move, which departs from Maruti's practice of making cars at its own plants in India.

Indian stock markets were shut on Thursday.

"It is clear there is no systemic efficiency gain due to this deal -- thus any value accretion to Suzuki is at Maruti's expense," Jefferies said in a research note.

Maruti has said it would buy the cars from the Gujarat plant at a price that would include only the cost of production and additional capital expenditure needs of the plant.

Maruti will also produce cars at its existing plants in Manesar and Gurgaon in north India that together have a capacity of 1.5 million vehicles per year.

(Reporting by Aradhana Aravindan and Abhishek Vishnoi; Editing by Gopakumar Warrier)