A proposal to merge Suzuki Powertrain India Ltd. (SPIL), the diesel engine and transmission firm, with Maruti Suzuki India Ltd. (MSIL) came from the board at the car company. It will materialise through a stock swap transaction with its Japanese parent Suzuki Motor and there will not be any cash outflow in the merger. Since the car maker is planning to increase production of diesel powered cars, this move is considered as an attempt to align the engine manufacturer with the expansion plans. SPIL will become a part of Maruti Suzuki by December 2012 in lieu of over Rs. 1,500 crores worth of its shares.
The two companies will share a swap ratio of 1:70, wherein for every 70 shares of SPIL worth Rs. 10 each, Suzuki will receive a share of Maruti worth Rs. 5 each. This will increase the stake of car maker from the current 54.2 per cent to 56.21 per cent. In order to increase its paid-up capital by Rs. 6.5 crores to facilitate the deal, Maruti is planning to issue 13.7 million fresh shares.
According to a company statement, "It is expected that the necessary regulatory approvals and legal requirements for the merger may be completed by end December 2012. Once the merger is approved, the books of accounts of SPIL will be merged with MSI with effect from April 1, 2012."
At the time of close of trading at the Bombay Stock Exchange (BSE) on June 12 2012, the car manufacturer's shares stood at Rs. 1,146.30 with a gain of 3.34 per cent. With net profit worth Rs. 150 crores, the total turnover for SPIL stood at Rs. 4,550 crores in the last fiscal. Following the merger, Maruti will also have to pay the debt of Rs. 550 crores that comes with SPIL. According to the deal, the powertrain manufacturing firm is valued at approximately Rs. 2,100 crores. At present, the car making company, owns 30 per cent stake in the powertrain firm which supplies 3 lac diesel motors and gearboxes to MSIL every year. With the proposed merger, the management will have direct control over the diesel powertrain production.
Managing Director (MD), MSI, S. Nakanishi, said, "We will be able to bring all the diesel engine capacity under Maruti leading to better integration and flexible production based on market needs." The company has announced that it will set-up a new diesel powertrain manufacturing plant at its Gurgaon factory with an investment of Rs. 1,700 crore. This new plant will have the capacity to produce 3 lac powertrain units by 2014. The merger will enhance the cohesiveness of Maruti in the fields of finance, capital structuring and administration in the long term.
Over the last few years, the inclination of Indian customers has shifted towards the diesel-run cars. This was due to the fact that petrol prices reached record highs in May 2012. According to Nakanishi, compared to 28% in June 2010, petrol now costs 74% more than diesel in India. As Maruti's diesel car sales volume rise to comprise 38.5% of its total cars sold in May 2012 from the 24% of its total sales last year, it now faces a lack of diesel powertrains.
The 2,600-strong workforce at SPIL will join MSIL's workforce of 10,000 employees and the company does not have any plans to cut down the workforce. Chief Operating Officer, Administration, S. Y. Siddiqui, said, "We will bring all the employees of SPIL under Maruti Suzuki and also restore parity of wages and other benefits once the merger is complete."
