Car market leader Maruti Suzuki India will now pay royalty to parent Suzuki Motor Corp in Indian rupees instead of Japanese yen.
Addressing shareholders at its annual general meeting, Maruti Suzuki India (MSI) Chairman R C Bhargava said the move would insulate the company from foreign exchange fluctuations.
"Royalty to Suzuki will now be paid in Indian rupee price and not yen, so that we won't be affected by foreign exchange fluctuations," Bhargava said.
He said with the company enhancing its research and development capabilities and playing greater role in joint product development with Suzuki, the royalty payout will also decrease.
"More and more R&D work will be done in India and royalty calculation will be based on work done here and our expenditures on R&D will be rewarded in the form of reduced royalty," he added.
In the first quarter ended June 30, 2014, MSI had paid royalty of Rs 689 crore, which was 6.2 per cent of net sales.
MSI expects the royalty paid to parent Suzuki Motor Corp to come down starting with its upcoming compact SUV as its engineers enhance their role in the joint development of future products.
The company, which is investing Rs 2,000 crore on a research and development facility, including a test track at Rohtak in Haryana, will enter the SUV segment early next year.
"Maruti has not been present in the SUV segment and Suzuki Japan has been aware of it. Early next year we will launch our SUV and a compact SUV will follow a year later. With these we will have sizeable presence in the SUV segment and fill unutilised capacity at Gurgaon and Manesar plants," Bhargava said.
On the Gujarat plant, Bhargava urged the shareholders to vote favourably in the voting that is to take place sometime next month to let Suzuki own and invest at the facility.
He reiterated that it was a win-win situation and would enable MSI to invest on strengthening sales and after sales network and enhancing R&D capability.