Raghuvir Srinivasan

Chennai , Sept. 14

WHY would Suzuki Motor Corporation (SMC) want to promote two new companies in India to establish a diesel engine and a new car assembly plant when it already has a 54 per cent subsidiary in Maruti Udyog?

This is the question irking analysts and industry watchers even as the stock markets in India and Japan have delivered their respective verdicts on who could gain and who could lose from the move. The last two days since the announcement have seen the Maruti stock fall by 9 per cent while the SMC stock has risen by 3.6 per cent on the Tokyo Stock Exchange. The Indian market appears nervous that Suzuki has not chosen to invest through Maruti and rightly so too.

To be sure, complete information is not available yet to enable a proper assessment of the move. For instance, SMC has not specified what will be the shareholding pattern in the joint venture, Suzuki Maruti India Ltd that will set up the new car plant. Will it be 50:50 between SMC and Maruti or will it be 51:49(or even higher) in favour of SMC?

Again, there is also some confusion over whether the second company, Suzuki Engineering India Ltd, that will set up the diesel engine plant, will be a joint venture with Maruti or a wholly owned subsidiary of SMC.

Suzuki's new avatars?

Yet, despite all this confusion, it appears clear that the two new companies, whatever their equity structure, represent the future of SMC's operations in India. The only difference between the two new companies on the one hand and Maruti on the other will be the presence of the Government as a shareholder. The latter holds 18 per cent in Maruti presently and also has its representative on the Board of the company.

The Government will either be completely shut out or maybe a very minor shareholder in the two new companies depending on their capital structure. Ditto for public shareholders (including institutions) who currently own 27.5 per cent in Maruti.

SMC's motivation appears to be to protect its future proprietary technology transfers for new car models and engines. The move may also be driven by the urge to retain most, if not all, of the earnings from future business with itself and not have to share it with other partners. SMC sees a major potential to use its Indian operations as a base to serve other markets in the region. India is anyway one of the biggest markets outside Japan for small cars and SMC is a leader in this segment.

There is also the possibility that the entire move is now designed to exert pressure on the government to sell its residual stake in Maruti to SMC before the stock loses further value. The public shareholders can always be bought out through an open offer. Interestingly, none of the big multinational passenger car companies in India is listed on the bourses. Ford, General Motors, Hyundai, Toyota, Honda and DaimlerChrysler all own between 95 and 100 per cent of their subsidiaries with absolutely no public shareholding. Suzuki is the only exception to that rule as Maruti is a listed company. But that may soon be history if SMC has its way.

What we are now seeing is probably the first move in a well thought out plan that will, in the near future, see a Suzuki subsidiary in India wholly owned by it and having under its control the new car assembly line, the diesel engine plant and most important, the existing assets of Maruti Udyog.

Ominous signals

For Maruti and its public shareholders, the signals are indeed ominous. There is bound to be a clash of interest in future and at a time when Maruti will need newer platforms and models to take on competition. The new small car platform that Suzuki has promised for India could well go to the new companies rather than Maruti. The latter would then be saddled with models old by a decade or more and worse, compete with its own parent's newer models in the same market.

Any surprise why the Maruti stock is receiving a beating?

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