After the announcement that Japan’s Suzuki would build a new factory in the state of Gujarat, India, investors worries about the Maruti Suzuki India Ltd., its subsidiary and the biggest local carmaker, triggered a drop in the company shares.
Suzuki announced on Feb. 26 that its new car plant – wholly owned – would supply cars to Maruti at a price, triggering a drop in Maruti Suzuki’s shares in Mumbai trading of 5.5 % to 1,573 rupees.
“For investors worried about Maruti’s independence today, this is hardly reassuring,” Jefferies analysts Govindarajan Chellappa and Rajasa Kakulavarapu wrote in note. “We wonder why this structure is needed in the first place. If Suzuki has excess cash on its balance sheet which it wants to utilize to help Maruti, there are other cleaner ways — extend a loan or give one-year credit on royalty.”
The Hamamatsu, Japan-based carmaker announced back in January that its new plant would total an investment of 50 billion yen ($491 million), it should begin manufacturing cars since 2017 and the entire 100,000 cars a year initial output would be for Maruti Suzuki.