Maruti Suzuki India Ltd (MSIL) expects to earn about Rs 10,500 crore in the first 15 years by allowing its parent Suzuki Motor Corporation to build and own an upcoming manufacturing plant in Gujarat.
“MSIL could earn about Rs 105 billion (Rs 10,500 crore), assuming a post-tax return of 8.5 per cent pa during the initial 15 year period of the contract manufacturing agreement (CMA) from the savings of investments not made in Gujarat. The earnings on investments not made by MSIL in Gujarat would continue during the extended period of the CMA,” the company said in a presentation filed to the Bombay Stock Exchange (BSE).
The CMA would initially be for a period of 15 years and shall be automatically extended for a further period of 15 years, unless the parties mutually agree to terminate it; and after the expiry of 30 years, MSIL and SMG may mutually agree to extend the period of the CMA.
MSIL had earlier planned to construct the manufacturing facility on its own, but later announced to enter into a contract manufacturing agreement with Suzuki Motor Gujarat (SMG), a fully owned subsidiary of Suzuki Motor Corporation (SMC).
MSIL would save on the investment needed to set up manufacturing capacity in Gujarat to the extent of the equity investments to be made by SMC in SMG. The amount would depend on the time period that would elapse from the start to when capacity reaches 1.5 million cars.
MSIL said that according to its current estimates of growth of the auto industry in India and its share of the market, total investments by SMG would be about Rs 18,500 crore. This would be financed by equity from SMC and accumulated depreciation.
MSIL had in 2012 announced plans to invest Rs 4,000 crore to set up its third plant on a 700-acre site near Mehsana by 2015-16 with a capacity of 2.5 lakh units in the first phase. Last year, the company said the plant had been delayed due to the slowdown in the automotive market. The land will now be transferred to SMC on lease.