Maruti Suzuki to invest Rs 1.25 lakh crore in plants in Gurugram, Manesar and Gujarat by 2030-31

Maruti Suzuki India (MSIL) on Monday said regular investments in existing plants in Gurugram, Manesar and Gujarat will continue, and the total investment could reach Rs 1.25 lakh crore by 2030-31.

The capex in 2022-23 was around Rs 7,500 crore, said a stock filing on a presentation to shareholders, analysts and proxy advisers for the acquisition of Suzuki Motor Gujarat (SMG).

“The new capacity being added will generate additional cash flow, but there will be a lag between investment and revenue. Management believes that cash should be available first and not spent in anticipation of revenue,” he said. The company said.

If at any time excess cash accumulates, and there is no need for investment, it can be used appropriately, including increasing the dividend payout band and paying higher dividends, he said.

Also read: Maruti Suzuki receives taxman’s draft order under which additional ₹ 2,159 crore will be subject to income tax

A payment of over Rs 12,500 crore for Suzuki Motor Corporation’s (SMC, Japan) stake in SMG will create a cash crunch, apart from reducing profits, EPS and dividend payouts.

MSIL has since its inception followed a policy of accumulating cash reserves while minimizing its expenditure. The company said increasing productivity and reducing waste, as well as an emphasis on improving from employee suggestions, have contributed to building cash reserves.

In 2014, MSIL made a proposal to shareholders that SMC, rather than MSIL, would finance and execute the creation of new manufacturing capacity in Gujarat.

Also read: Businesses need to reassess, restructure with focus on sustainability: Maruti MD

The main reason for this was to enable MSIL to use its managerial and financial resources to strengthen its marketing, and sales and service infrastructure, rather than focusing on manufacturing in Gujarat. Be diverted to build capacity.

This was necessary at that time as MSIL had lost market share and needed to increase sales. The proposed arrangement will also result in an increase in MSIL’s profitability, as it will not use its cash to set up production facilities and can earn interest on that amount.

SMC will complete the Gujarat project as a wholly owned subsidiary SMG and finance the project by bringing in the required capital in the form of equity from Japan. It was done by SMC.

SMG entered into a contract manufacturing agreement with MSIL to supply the entire production to MSIL for sale. SMG was contractually required to operate on a ‘no profit no loss’ basis and not collect any additional money of any kind.

This being a related party transaction, the majority of the minority shareholders approved and the CMA was signed in 2015. The CMA was initially for a period of 15 years. In the event of termination, MSIL will have the first option to acquire 100 percent of SMC’s equity in SMG at net book value.

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