Maruti Suzuki India tumbled 5.05% to Rs 1615.50 at 14:55 IST on BSE after the company said it will implement the expansion project in Gujarat through a 100% Suzuki subsidiary.
The company made the announcement during trading hours today, 28 January 2014.
Meanwhile, the BSE Sensex was down 13.44 points, or 0.06%, to 20,694.01.
On BSE, so far 5.18 lakh shares were traded in the counter, compared with an average volume of 80,788 shares in the past one quarter.
The stock hit a high of Rs 1,750.10 and a low of Rs 1,567 so far during the day. The stock hit a 52-week high of Rs 1,864 on 9 January 2014. The stock hit a 52-week low of Rs 1,217 on 28 August 2013.
The stock had underperformed the market over the past one month till 27 January 2014, sliding 4.17% compared with the Sensex's 2.29% fall. The scrip had, however, outperformed the market in past one quarter, rising 12.92% as against Sensex's 0.12% rise.
The large-cap company has an equity capital of Rs 151.04 crore. Face value per share is Rs 5.
The board of MSIL had, on 29 October 2011, approved the purchase of land in Mehsana District of Gujarat for further expansion of manufacturing facilities. Following this decision, MSIL acquired approximately 640 acres of land in Becharaji and approximately 550 acres in Vithalapur. The expansion of facilities was kept on hold due to market conditions.
MSIL said the board recently received a proposal from Suzuki Motor Corporation (SMC) for implementing the expansion project through a 100% Suzuki subsidiary. The Suzuki subsidiary would always remain a 100% Suzuki owned company.
MSIL said its board, today, 28 January 2014, decided that the time was now appropriate to expand production facilities in Gujarat. It approved implementing the expansion through a 100% Suzuki subsidiary because it would result in substantial financial benefits to MSIL, and its minority shareholders.
MSIL said it would enter into a contract with this subsidiary company under which all production in the subsidiary company would be in accordance with the requirements of MSIL, and the vehicles would be sold to MSIL. The Suzuki subsidiary would not sell vehicles to anybody else.
The price of the vehicles to MSIL would include only the cost of production actually incurred by the subsidiary plus just adequate cash (net of all tax) to cover incremental capital expenditure requirements. The return on this investment for SMC would be realized only through the growth and expansion of MSIL's business, the company said.
MSIL said it would financially benefit from the interest earnings resulting from not investing its money in this project. It would also benefit because the vehicles would be sold to MSIL by the Suzuki subsidiary without any return on capital employed. MSIL would be able to avoid all risk inherent in any investment. MSIL would also retain the option of investing its own funds for strengthening its marketing network, product development, R&D and any other opportunity of growth or building strength for market leadership.
MSIL would render all required assistance to the subsidiary company for implementing this project on an arms length basis. The land for the project would be leased by MSIL to the subsidiary company to establish the production and related facilities. The rent would be determined on an arms' length basis, the company said.
MSIL's net profit rose 35.88% to Rs 681.15 crore on 3.32% decline in total income to Rs 11010.79 crore in Q3 December 2013 over Q3 December 2012. The company announced the results during trading hours today, 28 January 2014.
MSIL said higher localisation, favourable foreign exchange and cost reduction initiatives by the company contributed significantly to net profit.
The company's net sales fell 3% to Rs 10619.70 crore in Q3 December 2013 over Q3 December 2012.
Pursuant to the scheme of amalgamation of Suzuki Powertrain India (SPIL) with Maruti Suzuki India (MSIL) with effect from 1 April 2012, on completion of all formalities on 17 March 2013, the results of SPIL for the year 1 April 2012 to 31 March 2013, were included in the results of MSIL for the quarter ended 31 March 2013. Therefore, the Q3 December 2013 figures are not comparable to previous period.
The company sold a total of 2.88 lakh vehicles in Q3 December 2013, a drop of 4.4% over Q3 December 2012. Exports fell 38.6% to 19,966 units in Q3 December 2013 over Q3 December 2012. Sales remained under stress during the period, in both domestic and export markets.
In Q3 December 2013, market share of the company in the domestic market stood at 42.8%, a gain of 2.5% over Q3 December 2012.
Japanese parent Suzuki Motor Corporation (SMC) holds 56.21% stake in Maruti Suzuki India (as per the shareholding pattern as on 31 December 2013).
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