In a major win for domestic institutional investors, Maruti Suzuki on Saturday stepped back in the face of opposition to tweak key clauses of its proposed agreement with parent Suzuki Motor.
At its board meeting, the Indian carmaker announced it would buy vehicles from the Gujarat plant that Suzuki would develop at manufacturing cost and the plant would be transferred to Maruti at book value in the event of termination of the agreement.
Also read: Gujarat: Maruti to seek investor nod; Suzuki to fund capex
The earlier version of the agreement said Maruti would buy vehicles from Suzuki Gujarat at a manufacturing plus "incremental capex" cost and the plant would be transferred at fair value in case of termination.
Fund managers had said the deal would hurt margins for Maruti which could have itself manufactured the car cheaper and that the Indian company was -- through the "incremental capex" cost -- funding the plant's expansion without eventually having control of the asset.
In an interview with CNBC-TV18's Shereen Bhan, Maruti chairman RC Bhargava defended the earlier decision of the company. "We did not anticipate so much skepticism to the deal," he said.
"The concept of the deal does not change. It is still designed to create a win-win for Maruti and strengthen the company and benefit its shareholders. But since a lot of people had expressed doubts over some of the aspects of the deal not being explicitly clear. We have cleared them now," he said. "The changes are something everyone is happy with now."
Maruti would also seek approval from its minority shareholders, which hold about 44 percent stake in the company voluntarily. "It is not required because the particular section of the Companies Act, 2013 [related to material related party transactions] has not been notified yet but taking into account what is happening and in the interests of good corporate governance, we agreed to do this."
Bhargava also spoke about the contours of the deal as it stands now, including when it would come on stream.
The Maruti chairman also spoke about other issues such as royalty payments to the parent company and whether the company could have avoided the ugly situation that ensued since the deal's announcement.
Below is the verbatim transcript of RC Bhargava's interview with Shereen Bhan on CNBC-TV18
Q: The changes that have been made to your Gujarat proposal in response to the intent investor oppression. Can you articulate for us whether the independent directors are now on board with the changes that have been made to your proposal?
A: The changes are something which everybody is very happy with because they clarified the doubts which were coming out from the market. The basic concept of the project has not changed. It is still designed to create a win-win situation for all to strengthen Maruti, to benefit the shareholder. A lot of people have expressed doubts about some of the provisions there which were not explicitly clear. So, what we have done now is to clear them. The only major difference is that there is no markup at all; the funding of the capex will be done by equity brought in by Suzuki.
Q: One of the other significant changes over the proposal from last time is that you will now seek minority shareholder approval for the Gujarat deal. Previously you had said that you will not requite minority shareholder approval, so you are now voluntarily going to seek minority shareholder approval?
A: It is still not required because that particular section is not been notified yet, but taking into account what has been happening and the interest of good corporate governance, Mr. Suzuki agreed to do this, which is actually quite remarkable because in Japan there is not much of a concept of minority shareholders and minority shareholders' rights. So, for him to agree to this, I thought was a major step forward.
Maruti Suzuki stock price
On March 14, 2014, Maruti Suzuki India closed at Rs 1737.10, down Rs 9.6, or 0.55 percent. The 52-week high of the share was Rs 1864.00 and the 52-week low was Rs 1217.00.
The company's trailing 12-month (TTM) EPS was at Rs 106.68 per share as per the quarter ended December 2013. The stock's price-to-earnings (P/E) ratio was 16.28. The latest book value of the company is Rs 615.03 per share. At current value, the price-to-book value of the company is 2.82.
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