BackMaruti Suzuki outlines sops for shareholders
Car maker may offer 18% and 30% dividend in the coming years, suggests increase in FII limit to 40% from 24%
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New Delhi: Maruti Suzuki India Ltd on Thursday offered two sweeteners to its shareholders as India’s largest car maker tries to win investor approval for its Japanese parent’s proposed investment in a Gujarat plant.
Declaring its financial result for the September quarter, Maruti said its board had recommended an increase in the limit for foreign institutional investment (FII) to 40% from 24%, and may pay a dividend in the range between 18% and 30% in the coming years, depending on how its business fares in a particular year. Dividend payouts have hovered between 10% and 15% in the last few years.
The company’s net profit rose 29% to R862.5 crore in the three months ended 30 September from a year ago. Net sales rose 17.5% to ₹ 11,996.30 crore. The company attributed net profit growth to higher sales in the domestic market and cost savings through a focused plan begun three years ago. According to a sector analyst with a leading Mumbai-based securities house, the higher FII limit and dividend were intended as sops to convince minority shareholders to vote in favour of the Gujarat investment plan by Suzuki Motor Corp.
“Obviously, they have to appease the minority shareholders as the Gujarat plant issue is impending," said Dharmesh Shah, a sector analyst with SBI Cap Securities Ltd.
Maruti shares rose 1.14% to ₹ 3,242.15 on a day the BSE’s benchmark Sensex gained 0.92% to a record 27,346.33 points.
The increase in FII limit, which is subjected to shareholder and Reserve Bank of India (RBI) approvals, may help Maruti get back onto the Morgan Stanley Capital International (MSCI) index, from which it has been removed.
A stock’s liquidity is a precondition for it to find a place on the index, which is used as a benchmark by many global funds. It also has a bearing on the stock price of a company.
In January, Suzuki announced that it would invest ₹ 3,000 crore in a plant in Gujarat and sell the cars it produces there to Maruti Suzuki.
That marked a significant change from an earlier plan under which the latter would have built the plant itself.
The announcement raised concerns that Suzuki could sell the cars at a higher price to Maruti than it would have cost the latter to produce them itself.
The institutional shareholders such as Axis Mutual Fund, DSP BlackRock Mutual Fund, HDFC Mutual Fund, ICICI Prudential Mutual Fund, Reliance Mutual Fund, SBI Mutual Fund and UTI Mutual Fund opposed the plan. In March, Maruti succumbed to pressure from investors, independent directors and market regulator Securities and Exchange Board of India (Sebi), and agreed to seek minority shareholders’ approval for the contract manufacturing agreement.
Maruti chairman R.C. Bhargava said the company was conservative in offering incentives to investors but Suzuki’s decision to invest in Gujarat, rather than Maruti Suzuki, had left enough cash with the Delhi-based company to “please" shareholders.
“We work to please the investors, don’t we?" Bhargava said at a press conference.
“One of the reasons why we were more conservative was because Maruti was making investments. Now, investment needs won’t grow as investments in Gujarat will be made by Suzuki. Therefore, we thought to be liberal with dividends."
Bhargava said the company hadn’t yet decided on a date for the minority shareholder vote due to “procedural delays" and there is “no urge to do that".
“We would like to do it when it is convenient for all of us. But we want to make sure that commencement of plant happens in May 2017," he said.
The company had earlier committed to taking a shareholder vote in October, Mint reported in August.
In the September quarter, Maruti sold 321,898 vehicles, an increase of 16.8% over the year-ago period. Exports accounted for 34,211 units. Sales have been helped by newly introduced executive sedan Ciaz and small car Celerio, besides its top-selling Swift and DZire.
The company said that there has not been much of an improvement in the market although the overall passenger vehicle industry has grown by 4.25% to 1.2 million units during the first six months to 30 September this fiscal.
It declined 6% in the financial year ended 31 March.
“If you take out Maruti’s performance, the rest of the industry will end up in negative. Besides, the industry saw better sales in the second half of previous fiscal, which means that scope for better growth will be limited in this half," Bhargava said.
“Situation is not bright as everybody thought it to be."
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