New Delhi: In order to prepare itself to meet increasing demand for diesel vehicles, Maruti Suzuki India Tuesday said it will merge engine and transmission maker Suzuki Powertrain with itself.
Subsequent to this merger, Japanese parent Suzuki Motor Corporation's (SMC) stake in Maruti Suzuki India (MSI) will go up to 56.2 percent from 54.2 percent due to a share swap agreement with the domestic car market leader to acquire Suzuki Powertrain India Ltd (SPIL).
SMC holds a 70 percent stake in its subsidiary SPIL, while the rest is held by MSI.
"The merger promises multiple benefit, specially when we consider the increasing dieselisation of the Indian car market. With this, Maruti Suzuki will be able to bring all its diesel engine operations under a single management," MSI Managing Director and CEO S Nakanishi told reporters here.
This will help in bringing down costs and also providing more flexibility while meeting fluctuations in market demand, he added.
"With the SPIL facility, now being added to MSI, we can have a cohesive diesel strategy as it will provide synergies in finance and capital," Nakanishi said.
Reacting to the announcement, the shares of MSI Tuesday closed 3.34 percent up at Rs 1,146.30 apiece on the BSE.
Earlier during the day, the Board of Directors of MSI approved the merger proposal of SPIL, which supplies 3 lakh diesel engines and transmissions every year to MSI.
"Consequent to the merger, SMC's holding in MSI will go up from 54.2 percent to 56.2 percent ... MSI proposes to make a fresh issue of 13.17 million shares to SMC in lieu of SMC's 70 percent holding in SPIL," MSI said.
The domestic car market leader said there will be no cash outflow from MSI as the merger is proposed to be effected through a share swap agreement.
As per the understanding, the swap ratio has been fixed at 1:70, which means SMC will receive one share of MSI of Rs 5 each for every 70 shares of Rs 10 each it holds in SPIL.
"It is expected that the necessary regulatory approvals and legal requirements for the merger may be completed by end December 2012. Once the merger is approved, the books of accounts of SPIL will be merged with MSI with effect from April 1, 2012," the company said.
Nakanishi said SPIL's turnover in last fiscal stood at Rs 4,550 crore with a net profit of Rs 150 crore.
MSI Chief Financial Officer Ajay Seth said: "SPIL has a debt of Rs 550 crore, which will now go into MSI's book."
Commenting on the job scenario post this merger, MSI Managing Executive Officer (Administration) S Y Siddiqui said SPIL currently has 2,592 employees and "there are no plans to reduce jobs".
When asked about the government's proposal to levy an additional tax on diesel vehicles, Nakanishi said: "If it is imposed, the volumes will be down."
He, however, said there will be no impact on future investment by the company due to any such adverse taxation.
The company is investing Rs 1,700 crore to set up a diesel engine plant, with a total annual production capacity of 3 lakh units, at its Gurgaon facility by 2014.
On MSI's recent decision to cut production of petrol cars, Nakanishi said: "Out of the total petrol engine capacity, we are utilising only 70 percent."
The company has the capacity to roll out 11 lakh petrol cars every year, he added.
He further said MSI's earlier estimate of selling 50,000 petrol cars less in 2012-13 may go up if the current price gap between petrol and diesel continues.
Last week, MSI had said it cut production of some petrol models, including the best selling Alto, by 8,000-8,500 units as sales of such cars have declined due to high fuel costs.
First Published: Tuesday, June 12, 2012, 12:57