Suzuki trying to set up wholly owned subsidiary in India; MSIL minority stakeholders skeptical

Added in: Maruti Suzuki

Maruti Baleno Global Launch - Images (3)

Suzuki Motor Corporation, a 56 percent holder in MSIL, is trying to create a 100% owned Indian subsidiary which would be a separate entity from MSIL. With that sort of an arrangement, Suzuki seems to have a plan where it will take care of the majority of (if not all of) production in India, while MSIL will focus on marketing, sales and service of the products in India.

“I sense a long-term agenda here of bringing the bulk of production under full control of Suzuki eventually. One of the motives for setting up a wholly owned production operation would be to take full control of exports and bypass Maruti completely”, said Ashvin Chotai, managing director of researcher Intelligence Automotive Asia.

The proposed move has the minority stakeholders in Maruti Suzuki India worried, as it could possibly dilute the dominant position in the sector enjoyed by the Indian company. The shareholders are concerned that the move will eventually result in the sidelining of the Indian unit, and may adversely affect the prices of the Indian company’s shares. Suzuki has an uphill task of convincing the MSIL shareholders that the move won’t be detrimental to their interests.

With India slated to become the third largest car market by 2020, of which MSIL currently enjoys a 45% market share, Suzuki Motor Corp plans to consolidate its presence and position in the market. The company, by investing directly in India wants to have a more direct role to play in a market which will form the bulk of its revenues and growth in the times to come.

In the meantime, as many as 16 of Maruti Suzuki’s institutional shareholders have protested to Suzuki’s plans of setting up a wholly owned subsidiary in India, proposed first in January 2014. The plan proposed building up a wholly owned subsidiary that would build a factory in Gujarat.

Institutional Investor Advisory Services India Ltd has recommended investors to vote against the deal. On the other hand, Stakeholders Empowerment Services is in favour of the move. Results on the ballot will be out on Dec 17 2015. It would be interesting to see the results.

What’s your view of the scenario? Which way would you take from a shareholder’s perspective? Do share your thoughts with us.

Source ET AUTO

Read More »
Leave a Reply

Your email address will not be published. Required fields are marked *