 "R C Bhargava")
Future growth of the country's largest car maker, Maruti Suzuki India, is dependent on its upcoming Gujarat factory. However, the proposal has to be approved by the minority shareholders and proxy advisory firm IiAS is advising a 'No' vote. R C Bhargava, chairman of the company, talks to Ajay Modi on the issues. Edited excerpts:
Why has there been opposition to the proposal of letting (parent firm) Suzuki invest in the Gujarat plant and be a contract manufacturer for Maruti?
The only firm opposing this is IiAS. SES, Deutsche Bank, Credit Suisse have all favoured the scheme. If you read the IiAS report, the conclusions are not supported by any reasoning. They talk about the balance of power shifting to Suzuki and Suzuki getting control of Maruti. They claim Maruti will lose control over its destiny. These are emotional statements, without any justification. I doubt their ability to analyse our business. I am not totally surprised at their lack of knowledge of the automobile industry.
What was the logic behind this structure of letting Suzuki invest?
In 2010, we thought to put up our own company. Subsequently, Suzuki came to the conclusion that India had become too important for them. Suzuki is and will become increasingly dependent on Indian operations, not on Maruti. This is the only point of IiAS to which I agree. It is in Suzuki's interest that Maruti becomes stronger, more competitive and profitable. The better Maruti does, the better it is for Suzuki. That's obvious. This is not understood by IiAS. They show a lack of understanding of the automobile industry. They seem to believe that (this sector) is all about manufacturing. That might be true of various commodity products but is totally untrue of the automobile industry. People said it will make Maruti a trading company. Somebody who has never run an automobile company but only analyses balance sheets and figures cannot understand the industry better than someone who has run it.
What do you plan to do with the cash reserves?
When people buy a car in India, they look for good service. Service means spare parts and workshops. The quality of service and spare parts affects safety. Service also determines the second-hand price of the car. This calculation goes into the decision on buying a car. Today, Maruti commands the highest second-hand price. There are reasons behind this. The service network is a major consideration in the minds of people; there is not much difference (between car brands) in prices or the mileage aspect. Ease of service and maintenance is a real differentiator, not manufacturing.
I explained this to IiAS on three occasions; the latest one was three to four weeks earlier. In the meeting, they seemed satisfied. The ability to produce new models regularly is another key factor. We have to strengthen that capability, as the life of models is becoming shorter. Both service network expansion and product development will need money.
Does it make sense for Suzuki, other than the fact that its subsidiary gets stronger?
Suzuki has surplus cash in the banks. The cost of Japanese money is zero, more or less. So, they brought money to deploy here and strengthen our operations. There is no repayment, no interest cost for us. As compared to a loan, it improves my cash flow and reduces my cost. Suzuki's only interest is to strengthen Maruti. If Maruti is strengthened, all the shareholders, including Suzuki, stand to gain.
Has Suzuki had a similar experiment anywhere else?
There is no other country in the world where they have a subsidiary in such a dominant position. This is the first time it is being done.
Are all agreements in black and white?
I met one shareholder who told me it is too good to be true and there must be something beyond this. But, every possible loophole by which Suzuki could siphon off money has been blocked. Otherwise, many shareholders and proxy companies would have raised concerns. Not a single loophole anyone could identify.
IiAS has said Suzuki's interest in Maruti board meetings has gone up after the proposal for the Gujarat plant came up. Do you agree?
It is true that in the past, Osamu Suzuki (chairman of Suzuki) was not attending most board meetings. But, he had his people here. For the past two years, he has been attending every board meeting. Maruti is a Suzuki subsidiary and their largest investment. Not attending a board meeting doesn't mean he stopped coming to India. To my knowledge, no other chief executive of a multinational corporation has visited India so often. He always visits the plants and makes suggestions to improve. He was here on Wednesday.
It was a holiday but he went to Subros' (supplier of air conditioners to Maruti) plant in the afternoon and gave suggestions.
How confident you are that the voting (December 17) will be in your favour?
I am not going to make a prediction. It is for the shareholders to decide. We have spoken to all the major shareholders to answer their queries. Everybody except IiAS agrees the deal is positive for Maruti.
