New Delhi, January 28
In a first-of-its-kind arrangement in the country, Japanese automotive giant Suzuki Motor Corporation (SMC) today announced the setting up of a wholly owned subsidiary for the Gujarat project as part of its expansion plans while keeping its control over its Indian arm, Maruti Suzuki India Ltd (MSIL).

As part of the arrangement, which was cleared by both the SMC and MSIL Boards today, the new subsidiary, Suzuki Motors Gujarat Pvt Ltd (SMGPL) would manufacture vehicles as per the requirement of MSIL and sell them to Maruti Suzuki India at the cost price. MSIL, on its part would only sell these vehicles by keeping its margin on the units.

As part of the arrangement, MSIL would continue with its own production at Gurgaon and Manesar and also market those products, but would not play any role in the manufacture of the vehicles in Gujarat.

The SMGPL would not sell even a single vehicle produced in Gujarat to any other company but MSIL.

While analysts pegged the SMC’s decision to float a subsidiary for the new project on corporate governance issues, including the effect of the violence at the MSIL’s plant in Manesar in 2012, MSIL chairman RC Bhargava said the decision would prove to be a win-win situation for all the three Suzuki-owned companies.

SMC holds 56% stake in MSIL and the latter contributes more than 50% to the former’s global earnings.

The announcement, however, had the MSIL shares tumbe. The shares plunged 9% to Rs 1,545, falling nearly 12% from the intra-day high.

Making the announcement of the new Suzuki subsidiary, Bhargava in the presence of SMC chairman Osamu Suzuki said the decision was based on the fact that the parent company did not see any expansion avenues in Japan and that it has enough surplus in hand to invest in India and accordingly earn higher interest here than in the parent company.

Bhargava said, “MSIL would enter into a contract with this subsidiary company under which all production in the Gujarat plant would be in accordance with the requirements of MSIL and the vehicles produced there would be sold to MSIL.”

The price of the vehicles to MSIL would include only the cost of production actually incurred by the subsidiary plus just adequate cash (net of all tax) to cover incremental capital expenditure requirements. The return on this investment for SMC would be realised only through the growth and expansion of the MSIL’s business.

MSIL would financially benefit from the interest earnings by not investing its money in this project. It would also benefit because the vehicles would be sold to MSIL by the Suzuki subsidiary without any return on capital employed.

MSIL would also retain the option of investing its own funds for strengthening its marketing network, product development, R&D and any other opportunity of growth or building strength for market leadership, Bhargava said.

The land for the project in Gujarat, acquired by the MSIL, would be leased by it to the new subsidiary to establish the production and related facilities. The rent would be determined on an arms’ length basis.

Suzuki plans to have an initial capacity of 1 lakh units per year for the plant.

"We will gradually increase the capacity of Gujarat plant,” Suzuki said, adding that with MSIL about to reach production capacity of 1 million units, managing another plant would have put additional burden on the company.

The over Rs 7,500-crore reserves of MSIL would now be used to expand the sales network.

New Delhi: Maruti Suzuki India on Tuesday posted a 35.87% increase in net profit at Rs 681.15 crore for the third quarter ended December 31 on account of higher localisation, favourable foreign exchange and cost reduction initiatives.

Net sales in the quarter under review, however, declined 3.07% to Rs 10,619.68 crore from Rs 10,956.95 crore a year earlier.

During the period under review, the company's market share in the domestic market stood at 42.8%, a gain of 2.5% over the third quarter of 2012-13. — PTI

New Delhi, January 28
Corporate India was surprised and disappointed with the hike in interest rates today by the RBI and warned that growth and demand would suffer due to the high interest rate regime.

Industry body CII said India had entered a cycle where high interest rates are leading to subdued demand conditions resulting in lower growth and investment. This, in turn, is aggravating the supply bottlenecks and adding to inflationary pressures thereby inducing the RBI to hold on to higher interest rates.

“At a time when growth slowdown is getting entrenched across sectors and industrial production is at a low, CII strongly advocates a shift towards an accomodative monetary policy stance, sooner rather than later”, it said.

Assocham said the RBI itself had recognised the fact that the growth is losing momentum but the answer does not lie in compressing the aggregate demand but boosting investment to increase supply. “With this kind of macro scenario, the outlook for 2014 does not look rosy. After all, the fiscal tightening on the back of gold import curbs and cut in Plan expenditure has its own cost on the economic growth and employment”, Assocham president Rana Kapoor said.

The real estate sector, which has been hurting due to a multitude of factors, sees the rate hikes as a big negative. Kamal Taneja, managing director, TDI Infracorp, said, “Hike in repo rate by the RBI today will hit the already weak investment momentum and impact Indian economic growth. This step will make corporate and retail loan more expensive, especially during the time when investment climate continues to be weak. This is surprising and it may increase EMI burden on common man thereby adversely affecting buyers sentiments”.

Lalit Kumar Jain, chairman, CREDAI, said the real estate industry is under tremendous pressure on various counts like inflation, rising input costs, fuel price hikes, apart from the high interest regime. He cautioned this will lead to further price rise and keep customers at bay.

Analysts said interest rates are unlikely to moderate soon. Naresh Takkar, MD & CEO, ICRA, said though the move will be negative for industry as borrowing costs are likely to inch up, the action indicates the near term focus has clearly moved to according higher priority to inflation management over concerns on moderating growth. The hike in the repo rate may also support the rupee in case of adverse external developments.

“Based on the expected trajectory of CPI inflation, we expect an extended pause in terms of the repo rate, with a low likelihood that policy will turn accomodative in the near term”, he said.

New Delhi, January 28
Telecom regulator TRAI today allowed the cellular operators to buy and sell spectrum, but it has recommended a bar on leasing of airwaves for now.

As per TRAI statement, mobile operators can now trade spectrum which they have bought through auction or have paid market price. But, administratively allocated spectrum cannot be traded.

While giving details of the “working guidelines for spectrum trading,” TRAI said, “Under spectrum trading, only outright transfer of spectrum is permitted, that is, the ownership of the usage right is transferred to the buyer. Spectrum leasing is not permitted at this point of time”.

TRAI said the government may collect a transaction fee of 1% on spectrum being traded.

Chandigarh, January 28
Dissatisfied with the wage hike offer made by the Indian Banks' Association (IBA), public sector banks’ employee unions have threatened to go on a two-day strike from February 10.

"In yesterday's meeting, the IBA improved their offer by meagre 0.5% to 10% on pay slip cost. This was rejected by the unions," said Parmod Sharma, deputy general secretary, All-India Bank Officers’ Confederation.