Suzuki Motor Gujarat's production partnership with Maruti Suzuki comes to an end

1 Aug 2023 , 02:08 AM

Maruti Suzuki India, the largest automaker in the nation by volume, reported a first-quarter profit more than doubled, beyond expectations. The first quarter’s combined net profit more than doubled to Rs 2,525 crore, while net sales reached Rs 32,338 crore.

Suzuki Motor Gujarat (SMG) and Maruti Suzuki have announced that they will end their contract manufacturing relationship and that Maruti Suzuki will exercise its option to purchase the shares of SMG from Suzuki Motor Corp. (SMC).

According to the company’s regulatory filing, Maruti Suzuki India Ltd. (MSIL) will need to virtually double its existing production capacity by the years 2030–31 to reach about 4 million automobiles annually due to the expansion of the Indian auto industry and export potential. This might occur in a number of places, some of which are known and some of which are under investigation.

Chairman of Maruti Suzuki, RC Bhargava, stated to ET, ‘In 2014, we had made a very unique proposition to our shareholders that Suzuki Japan will establish a manufacturing facility in Gujarat and create a 100% owned subsidiary to produce cars for MSIL. Since its 2015 signing, the contract manufacturing agreement (CMA) has operated successfully.

However, a lot has happened since then in both the nation’s and the car industry’s general environment. This is related to the expansion of the auto industry in India, the size of the nation, and the variety of vehicle technology. By 2030, MSIL expects to reach a capacity of 4 million units, up from its current 2 million.

Model numbers have significantly increased as a result of our exploration of numerous alternative technologies and the necessity of minimizing our carbon footprint. The contract manufacturing arrangement will not function well, it has been determined. We must discover a reorganization that will function for the ensuing ten years.

SMG currently manages 25% of MSIL’s production, which could complicate the management structure in the future. If production and activities related to production are combined under a single entity, SMC and MSIL are in agreement.

The agreement is terminated with the parties’ consent. The CMA contains a clause that allows Suzuki to sell 100% of the equity in SMG. In a separate board meeting, it will be decided how and in what form the equity will be obtained.

This outcome won’t have any impact on the company’s output or earnings in any way. However, it will make MSIL’s operation easier by making it more organized and well-managed. Later, the method of acquisition will be chosen.

According to the CMA, the transaction may be completed using the book value. One advantage we will experience eventually is MSIL’s work on the electric vehicle.

Benefit: By getting involved in EV production, our employees will get significantly more experience and knowledge in this field over time than they otherwise would. By March 21st, 2024, the deal should be completed.

The business stated in a regulatory filing that ‘the Board of Directors considered this and decided that for the purpose of efficiency in production and supply chain, it is best to bring all production-related activities under MSIL.’

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