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DHI puts the brakes on Maruti proposal

Our Bureau

NEW DELHI, June 23

THE arguments presented by the Department of Heavy Industries (DHI) against a hasty sell-off of the Government's equity in Maruti Udyog Ltd (MUL) carried the day as the Cabinet Committee on Disinvestment (CCD) today failed to take a view on the divestmen t.

The Government and Suzuki Motor Corporation (SMC) of Japan are equal equity partners in MUL.

The DHI, led by its Minister, Mr. Manohar Joshi, while opposing the sell-off, has said several ancillary units manufacturing components for MUL would be hit severely if the Government sold off its stake. Besides, in the department's reckoning, the valuat ion of the company would be close to Rs.10,000 crores, taking into account its three plants, five assembly lines, the huge property close to Delhi, brand value and also its national servicing and marketing network.

The logic is that if one assembly line of Telco could be valued at Rs. 1,700 crores and that of a couple of other foreign car manufacturers at over Rs. 2,000 crores, there was no justification for selling the Government's holding cheap. This is to be vie wed in the context of the market penetration that MUL has achieved and its presence over a 15-year period since commencement of operation in 1984.

In spite of the two depreciated old plants, MUL's valuation would still be high if the replacement valuation model is adopted, whereby the imputed cost of setting up a similar manufacturing and servicing network would be the valuation of the Government's equity in the company.

Some senior Government officials are of the view that the timing of speculative reports about the sliding market share of MUL and its valuation were aimed at pressuring the Government into selling its holding cheap.

The proposal for sale of equity in MUL in two tranches has been under consideration for quite some time now. Despite the failure to arrive at a consensus in today's meeting, the proposal is likely to be referred again to the CCD later during the year.