Maruti Suzuki India on Monday came out with a rebuttal against proxy advisory firm Institutional Investor Advisory Services’ (IiAS) November 20 recommendation asking the carmaker’s shareholders to vote against the proposal of setting up a plant in Gujarat by parent firm Suzuki Motors Corporation. Maruti termed IiAS’s conclusions as “totally incorrect” and to have been based on “emotions, suspicions or aversion to foreign companies.”
The 11-page IiAS report had recommended the shareholders of the firm to “see through the razzle dazzle” of the carmaker’s resolution and to vote “against” it.
MSIL is currently seeking investors’ approval to the related party transaction with Suzuki Motor Gujarat (P) Ltd, for contract manufacturing agreement and lease deed for developing the plant on land owned by Maruti in Gujarat. The voting on the resolution began on November 16 and will go on till December 15.
IiAS alleged that, “Maruti’s board has agreed to cower to Suzuki,” and said that Maruti must have the “integrity to accept that it has built its own business, which grows faster and is far more profitable than Suzuki’s.” MSIL responded to this by saying that, “For IiAS to say that the board has cowered to Suzuki is not only totally incorrect but is directly accusing such eminent persons.
The board, under law, has full power to take all decisions.” Further, in its three-page counter, MSIL said that the report has “several errors, misunderstandings of the automobile business” and that the conclusions are not based on “any facts or logic.”
IiAS argued that Maruti has surplus funds of Rs 12,640 crore in 2014-15 and since MSIL’s return on capital employed (RoCE) is higher than that for BSE Sensex, investors would benefit more if Maruti invests in the plant rather than distributing or keeping the funds invested in safe investments.
Countering IiAS argument, Maruti said that it will benefit and strengthen its leadership position by enhancing its sales and service channel. “The competitive position of Maruti in India will be hugely strengthened because of the additional Rs 8,000-10,000 crore available to us, free of cost, being invested in product development and infrastructure building. All of this will certainly strengthen Suzuki’s competitive position in India and help Maruti retain its market share and profitability.” It further said: “The RoCE would be far higher as no Maruti capital would have been deployed in Gujarat plant.”
MSIL, however, agreed with IiAS’ noting that Suzuki believed that its future would be increasingly dependent on Indian operations and said that this has been publicly stated by the Suzuki top management in the past.
“It is for this reason that Suzuki wants to infuse its money into India, via the Gujarat plant. This arrangement will bring Rs 8,000 to 10,000 crore of FDI into India at zero cost to Maruti,” said MSIL in its rebuttal and added that while Maruti will have full control over what happens in Gujarat, and all the profits from Gujarat will come to Maruti, it will also get “treasury income from the money not invested in Gujarat.”
IiAS also stated that Maruti’s dependence on Suzuki has lessened. Maruti negated the inference and said that while the work done in India for product development will “lead to a reduction in royalty rates, Maruti will be dependent on Suzuki for the platforms and power trains for the cars as well as for new technologies.”