Saturday, June 07, 2014
By Kamal Swami
MSIL to save Rs.10,500 Crore by not investing in Gujarat
Maruti Suzuki India, which agreed to let parent Suzuki Motor Corporation own an upcoming plant in Gujarat, expects to save about Rs 10,500 crore in the first 15 years by not investing in the facility. In a presentation filed to the BSE related to the contentious Gujarat plant, the company said it proposes to enter into a contract manufacturing agreement (CMA) with Suzuki Motor Gujarat (SMG), a fully owned subsidiary of Suzuki Motor Corporation (SMC).
"The CMA would initially be for a period of 15 years and shall be automatically extended for a further period of 15 years, unless the parties mutually agree to terminate it; and after the expiry of 30 years, MSIL and SMG may mutually agree to extend the period of the CMA," it said. Maruti Suzuki India Ltd said it "could earn about Rs 10,500 crore, assuming a post-tax return of 8.5 per cent per annum during the initial 15 year period of the CMA, from the savings of investments not made in Gujarat." "The earnings on investments not made by MSIL in Gujarat would continue during the extended period of the CMA," it added. MSIL would save on the investment needed to set up manufacturing capacity in Gujarat to the extent of the equity investments to be made by SMC in SMG.
"The amount would depend on the time period that would elapse from the start to when capacity reaches 1.5 million cars," it said. MSIL said according to its current estimates of growth of the auto industry in India and its share of the market, "total investments by SMG would be about Rs 18,500 crore. ""This would be financed by equity from SMC and accumulated depreciation," it added.
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