The Hindu : Lessons from Maruti

Online edition of India's National Newspaper
Tuesday, Jul 15, 2003

Opinion

Opinion - Editorials

Lessons from Maruti

MUCH TO THE delight of the stock market, Maruti's initial public offer of shares has succeeded spectacularly: the issue was oversubscribed nearly 10 times and listed last week 30 per cent over its issue price. However, the true significance lies not just in the extent of oversubscription but in the valuable message it has sent out for public policy. The Government's disinvestment programme has been given a shot in the arm. The Maruti experience shows that it is possible to achieve the core objective of the programme — capital realisation — simultaneously with certain other laudable objectives. The share offering has given a fillip to the moribund primary capital market and portends well for the secondary markets that are now firmly on the path to recovery. The Government went out of the way to favour the retail investors in the allotment of Maruti shares. While meeting a long-pending reform agenda of supplying quality scrips at the retail level, the offer promises to be a trendsetter for some of the forthcoming divestments in public sector enterprises. Last week, the Government decided to sell its residual, minority stake in companies such as VSNL, Balco and IBP through the stock market route.

The choice of an appropriate method to divest the Government's stake in a particular public sector enterprise has often been a divisive issue in the past. The success of the Maruti offer shows that it is unwise to be dogmatic in what are purely procedural matters. For the Government has clearly benefited from the flexible approach it adopted, by first handing over the company (in 2002) to the co-promoter and equal stakeholder, Suzuki. That not only ended a period of acrimony between the two promoters but paved the way for the Government's exit from the company through a public offer of shares. Before the public issue, Suzuki held 54.2 per cent of Maruti's stake and the Government of India 45.8 per cent. The latter's share has come down to around 20.8 per cent after the public issue. The new shareholders have already witnessed a sharp appreciation in the market value and that seems to portend well for the forthcoming divestments. Yet one must be wary of hasty generalisation. Each instance of public sector sale has been unique. The Government will do well to be practical and realistic over every facet including the timing of the disinvestment and the choice of the method in each case.

Government-owned enterprises that are, for various reasons, heading towards the capital market have something to learn from this share issue. That Maruti raked in massive subscriptions despite being aggressively priced shows that the stock markets are willing to pay a price for quality scrips. Equally significantly, it is clear that first time investors are convinced that the company's intrinsic strengths have remained intact, even as it has transformed itself from India's first modern car maker, enjoying a near monopoly status for a decade up to the early 1990s, to a nimble player more than willing to take on the competition. The deregulation of the passenger car industry in the 1990s opened the gates to many leading global car companies, which have set up production bases in the country. It is a shining achievement that almost a decade later, Maruti maintains its dominant position selling more than 350,000 cars with a 53-plus per cent market share. Its pioneering role in making available a modern automobile in the small car segment, where it is still the undisputed leader, is especially noteworthy. For many in the middle class, the company offered a convenient mode of personal transportation. With the public offer, it has given them an attractive investment option as well.

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