Maruti Suzuki India Ltd is learnt to have convinced a majority of its institutional investors to back the decision of its parent firm, Japan’s Suzuki Motor Corporation (SMC), to directly invest in the upcoming Gujarat car manufacturing plant, a step in the direction of the car major bagging approval of its minority shareholders for the controversial proposal.
State-owned LIC, the largest domestic institutional investor that holds 6.8 per cent stake in the company, however, is the missing link and the life insurance firm is keeping its cards close to its chest.
Two officials associated with two different institutions that have investments in MSIL, told The Indian Express that MSIL had recently held meetings with them and have almost convinced them on the issue by stating that the cash with MSIL will be utilised for product development (customised for India), payment of higher dividends and investment in real estate.
Confirming the meetings with the institutional investors including LIC, chairman of MSIL, RC Bhargava, said that the financial institutions asked the company about utilisation of its cash if SMC was going to invest in Gujarat plant.
“We told that we will invest in developing new products and on their constant upgrades since more and more of that work will now be done in India by MSIL. We also told them that we will invest in real estate as there have been issues with dealers where the land owners put them under pressure by constantly increasing the rent,” said Bhargava, adding that the investors also asked if the company will increase the dividend payout ratio to which MSIL agreed. Stating that that the company has held three meetings with LIC, he said, “They have not expressed their opinion either ways.”
He, however, exuded confidence on getting the decision approved by the minority shareholders when the resolution comes up for voting and that there were no reasons for anybody to vote against it.
“While we haven’t got any feedback from them, a lot of foreign and other institutional investors seemed satisfied and have said that it was a good deal for Maruti and its shareholders,” said Bhargava.
The firm’s board’s recent guideline on dividend payout ratio to keep it between 18 and 30 per cent also seems to be stemming out of the demands made by the institutional investors as the chairman said, “The decision is based on the feedback after meeting with the institutional investors and demand raised by other investors at the AGM (annual general meeting).”
On the decision of buying real estate, Bhargava said that the suggestion came from SMC chairman Osamu Suzuki, who suggested that MSIL develop dealerships for the long-term.
While Suzuki said that MSIL should set up company-owned company-operated dealerships which companies are doing in Japan and some other countries, MSIL felt that that company-owned model may not work here, “But as a middle path we have now said that we will own the land for dealerships. While it will bring stability, it will also help us lock the dealers and ensure that they don’t migrate,” said Bhargava.