Maruti Suzuki India Ltd (MSIL), the country’s largest carmaker, on Tuesday said that it will issue shares worth ₹12,841 crore ($1.54 billion) to its parent Suzuki Motor Corp. to fully acquire Suzuki Motor Gujarat Pvt. Ltd. from the Japanese automaker.
According to an exchange filing, MSIL will issue 12.32 million shares to Suzuki Motor Corp. at ₹10,420.85 each on a preferential basis, resulting in a transfer of control in exchange for 12.84 billion shares of Suzuki Motor Gujarat (SMG).
The deal will increase Suzuki Motor Corp.’s (SMC) effective holding in Maruti Suzuki by 1.7% to 58.19%.
The announcement comes shortly after Suzuki Motor Gujarat reported a 30% jump in turnover at ₹31,853 crore for FY23 from ₹24,440 crore in FY22.
Following the announcement, Maruti Suzuki’s shares fell 1.5% to ₹10,565.30 apiece on the National Stock Exchange. The stock ended the day marginally higher at ₹10,720.05.
“With the growth of the Indian car market and export potential, the company would need to increase its production capacity to about 4 million cars per annum by 2030-31, almost double from current levels,” said the company.
Suzuki Motor has invested around ₹18,000 crore so far in the small-car manufacturing factory under Suzuki Motor Gujarat, which can produce up to 750,000 passenger cars per year.
On 8 August, Maruti Suzuki had expressed its intent to acquire Suzuki Motor Corp.’s small car manufacturing facility in Gujarat.
The latest deal is aimed at enhancing efficiency and doubling Maruti’s manufacturing capacity by consolidating production under a single management entity.
The board of MSIL chose the non-cash share-swap route for the control of SMG since this avenue is estimated to generate higher net profit each year until 2030-31, to over ₹1,400 crore at the end of 2030. Besides, the share-swap route entails higher dividend payouts as compared to a cash buyout.
On 31 July 2023, the board of Maruti Suzuki had approved the termination of the contract manufacturing agreement (CMA) with Suzuki Motor Gujarat. The CMA was executed on 17 December 2015, and was initially for a period of 15 years. Upon termination, MSIL had the first option to acquire 100% of SMC’s equity in SMG at net book value.
Earlier this month, Maruti Suzuki said it was planning to enhance product range to 28 models from 17 currently and expand production capacity, which would require capital expenditure of around ₹1.25 trillion till 2030-31. The automaker said it was planning to expand its total production capacity to 4 million units per annum by 2030-31.