The Hindu : Maruti fixes floor price at Rs. 115

Online edition of India's National Newspaper
Saturday, May 31, 2003

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Business

Maruti fixes floor price at Rs. 115

By Our Staff Correspondent

PTI

Suzuki Motor's Chairman, Osamha Suzuki, greets the Union Minister for Disinvestment, Arun Shourie, at Maruti Udyog's first roadshow for its initial public offering (IPO) in Mumbai on Friday. MUL Managing Director, Jagdish Khattar, is also seen.

MUMBAI MAY 30. "Maruti's initial public offering (IPO) is an important step to strengthen the primary market in India. It is a fine opportunity and its success will set the stage for the disinvestment of National Aluminium Company (Nalco) and Bharat Petroleum which are on the anvil," said Arun Shourie, Union Minister for Disinvestment and Telecommunications. He was speaking here today at a press briefing to launch the roadshow for Maruti Udyog's IPO which is slated to open on June 12 and close on June 19. Mr. Shourie also said the disinvestment of Shipping Corporation of India (SCI) and Engineers India would take place in the next couple of months and that of Nalco by November.

The Government is making an offer for sale of 7.22 crore shares of Rs. 5 each at a floor price of Rs. 115 per share of MUL. The offer, through the book-building route, would constitute 25 per cent of the fully diluted post-offer paid-up capital of the company. The Minister said the Government had a put option for selling the remaining 20 per cent stake to Suzuki Motor Corporation. "There is a one year lock-in period according to the Securities and Exchange Board of India rules but within two years, we can either offer the equity in the market or to SMC," Mr. Shourie said.

SMC had subscribed to MUL's earlier Rs. 400 crore rights issue at Rs. 160 per share exactly a year ago and paid Rs. 1,000 crores to the Government as control premium for its management position at MUL.

Mr. Shourie said it was important to make Maruti a focus for research and development for Asia and a platform for exports to Asia and the rest of the world. The Minister said it was also an occasion when the Union Ministry of Heavy Industries, SMC, the Ministry of Disinvestment and MUL had achieved a world-class agreement in regard to the company's management control. "It is a win-win agreement and can open great vistas for Maruti. It is also a test case for Suzuki and Maruti and our honour is in your hands," Mr. Shourie said.

Jagdish Khattar, Managing Director, MUL, said India would remain a small car market for many more years to come. "Today, the penetration of cars in India is a mere 6 per 1,000 which is half of the level prevailing even in Sri Lanka and Pakistan. It is estimated that 40 million people who either own a two-wheeler or have no vehicle will upgrade in the next few years".

Further, Mr. Khattar said the small car segment accounted for 80 per cent of the Indian passenger car market and MUL had a 64 per cent share of this market. The company was now producing 1,700 cars a day which translated into 5 lakh units annually. "While MUL will be present in all the passenger segments, the focus will remain on small cars in the below Rs. 4 lakh range," said Mr. Khattar. He said the company had benchmarked its productivity against Suzuki's Kasai plant.

"In 1995, with 4,800 employees, we were producing 700 units a day and today with 4,600 employees, we are producing 1,700 units. We aim to increase productivity by 50 per cent in the next three years".

The company commenced exports of Alto in April 2002 and to-date had exported 24,000 units. Exports have gone up from 12,000 units in 2001-02 to 32,000 units in 2002-03 and will be around 40,000 units this year, according to Mr. Khattar.

General Motors (GM) has a 20 per cent stake in SMC, MUL's parent, and GM also has a presence in India. "GM in India has no relation to MUL and would not influence MUL's working," said Osamu Suzuki, Chairman and CEO, SMC, adding "except in things mutually beneficial which can be considered".

MUL's units in Gurgaon, have an installed capacity of 3.50 lakh units annually. The company boasts of a portfolio of ten brands including the Maruti 800, Omni, Zen, Alto and WagonR, Gypsy, Esteem, Baleno, estate Altura, Versa and Grand Vitara XL7. The company has achieved 95 per cent localisation.

SMC is the largest maker of mini cars in Japan with a share of 31.6 per cent of the market in 2002. It now holds around 55 per cent stake in the JV, and has underwritten the entire issue at Rs. 115 per share.

Suzuki has agreed to provide a 10 per cent discount for 2004 and 2005 on knocked down components imported by Maruti, except for the Altos built for export.

SMC will also no longer charge royalty for Maruti 800, Omni, Gypsy, Esteem and Zen. Mr. Khattar said, "However, for the newer models, royalty payable to SMC is 3 per cent although the Government allows for 5 per cent".

Investment in MUL from 1998 till part of 2000 was Rs. 2,000 crores and according to Mr. Khattar, over the next couple of years, the capex will be Rs. 350 crores annually. "The capital would be used for maintenance, upgradation, R&D, revamping of existing models and introduction of new models," he added.

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