 "A worker is reflected on the body of a Maruti Suzuki car as he locks the door of another car at a Maruti Suzuki stockyard on Ahmedabad")
A day after touching its record high, the stock of Maruti Suzuki lost about two per cent at the BSE on Tuesday, amid voting by minority shareholders on its upcoming plant in Gujarat. The unit is being set up with investment from parent firm Suzuki. On the day, proxy firm SES came out in support of Maruti’s proposal, after previously having opposed it.
“The firm (Maruti) has provided adequate rationale and disclosed the expected benefits from the proposed transaction. SES is of the opinion the proposed related party transaction does not entitle Suzuki Motor Company with any additional powers as compared to the powers which SMC already has. Therefore, SES recommends that shareholders vote for the resolution,” SES said.
The voting process of minority shareholders on the Gujarat plant started on November 16 and results are slated to come in by December 17.
Another proxy advisory firm Institutional Investor Advisory Services (Iias) had advised minority shareholders to vote against the proposal saying it was only in the interest of shareholders of Suzuki. Maruti has claimed that it will have total control over the plant, in spite of the investment coming from Suzuki.
In a separate report, Goldman Sachs recently said, “To understand the strategic benefits of this agreement, one needs to look at Suzuki and its relationship with Maruti in a global context. For Maruti, this agreement could free up valuable resources to focus on new launches, research and development, marketing and distribution to defend market share against rising competition, in our view."
The proposed unit had faced resistance from a section of shareholders, who objected to certain clauses related to the pricing of the cars to be manufactured in the plant. Maruti needs new capacity to match its double-digit sales growth, and it had plans to commission the Gujarat unit to be operational by May, 2017.
Under the original plan, Maruti was to set up the plant and had acquired the land. In January last year, it was announced the plant would be set up by Suzuki with an investment of Rs 3,000 crore. The new proposal had provisions for mark-up in prices of cars being sold to Maruti. This had triggered opposition from a section of shareholders. Institutional investors, too, accused Maruti Suzuki of flouting good corporate governance norms by accepting a proposal that might affect minority shareholders’ interests adversely.
A revised agreement was put in place under which Suzuki would sell vehicles from the plant to Maruti at production cost.
For the deal to go through, three-fourths of minority shareholders would have to give their assent via postal ballot. The plant is critical to Maruti’s plan to sell two million vehicles by 2020. The company is looking to produce 1.4 million vehicles in the current financial year. The Gurgaon and Manesar plants put together (1.5 million units annually) don't have much more capacity left.
