The proposal to issue Suzuki Motor Gujarat (SMG) parent firm Suzuki Motor Corporation (SMC) shares valued at Rs 12,841 crore was approved by the board of directors of Maruti Suzuki India (MSIL) today. Suzuki Motor Gujarat is the owner of this Gujarati manufacturing facility, which has an annual production capacity of 7,50,000 automobiles. Totally owned by Suzuki Motor Corporation, it is a subsidiary. The largest automaker in the nation declared in a report to the BSE that its ownership in Maruti Suzuki India will rise from 56.48% to 58.19% as a result of the issuance of shares to Suzuki Motor Corporation.

Under the terms of the contract manufacturing agreement (CMA) Suzuki signed with Motor Gujarat in 2015, the Gujarat facility manufactures automobiles for Maruti Suzuki India. In order to improve manufacturing efficiency and streamline its corporate structure, Maruti Suzuki India and Suzuki Motor amalgamated in July of this year.

The purchase of Suzuki Motor Gujarat from the Corporation was announced. With this acquisition, it will be possible to practically quadruple manufacturing capacity by 2030–2031. This contract manufacturing agreement contains a clause that allows Maruti Suzuki India to buy the Gujarat factory for the net book value of the preceding fiscal year. Suzuki Motor Corporation would receive 1.232 Crore equity shares from Maruti Suzuki, valued at Rs 10,420.85 per share, in exchange for Suzuki Motor Gujarat. He said that Suzuki Motor Gujarat’s entire revenue for the most recent fiscal year (2022-23) was Rs 31,852.5 crore.

Maruti Suzuki identified a share swap with Suzuki Motor Corporation as the preferable method to avoid a cash transaction and instead purchase the Gujarat facility from the parent company in a study that was submitted to its shareholders and analysts earlier this month. He had given a thorough justification for choosing the swap arrangement.

Maruti Suzuki stated that money will be needed to create sales, service, and parts infrastructure in order to nearly double domestic sales volumes (by FY31). It will also be necessary to improve the infrastructure for automobile exports in big quantities. 16.1 lakh passenger vehicles were sold domestically by Maruti Suzuki in FY23, a 21.1 percent increase from the prior year. In addition, its overall exports during the same fiscal year increased by 8.8% to 2.6 lakh automobiles, up from the previous year.

The corporation had cash on hand worth more than Rs. 45,000 crore as of April 1st. In addition to a decline in profit, earnings per share (EPS), and dividend payments, Maruti Suzuki warned that paying more than Rs 12,500 crore for shares of Suzuki Motor Corporation in Gujarat might cause a “shortage” of cash.