"Maruti Suzuki to Invest ₹1.25 Lakh Crore in Gurugram, Manesar, and Gujarat Plants by 2030-31"

Maruti Suzuki India (MSIL) has disclosed its ambitious capital expenditure plan, confirming that it will continue to invest in its existing plants in Gurugram, Manesar, and Gujarat. The company's total capital expenditure, slated to extend through 2030-31, is expected to reach a substantial ₹1.25 lakh crore.

For the fiscal year 2022-23, MSIL allocated approximately ₹7,500 crore for capital expenditures, according to a presentation made to shareholders, analysts, and proxy advisors regarding the acquisition of Suzuki Motor Gujarat (SMG).

The company emphasized the importance of maintaining a cautious approach to managing its finances. MSIL acknowledged that while additional cash flows from new capacities are anticipated, there may be a lag between investments and income generation. Thus, the company's management believes in ensuring that sufficient cash reserves are available before making expenditures, rather than relying on anticipated incomes.

MSIL noted that any surplus cash accumulated beyond its immediate investment needs could be used for various purposes, including expanding the dividend payout band and increasing dividend payments.

However, the payout of over ₹12,500 crore for Suzuki Motor Corporation (SMC, Japan) shares in SMG may have implications, impacting profits, earnings per share (EPS), and dividend payments, and potentially leading to a shortage of cash.

MSIL has historically adhered to a policy of accumulating cash reserves by being judicious in its expenditures. The company attributed this approach to its focus on enhancing productivity, reducing waste, and implementing improvements based on employee suggestions.

In order to increase its capacity to two million units, MSIL estimates a requirement of about ₹45,000 crore. This figure encompasses current costs and includes a buffer for potential cost escalation. These funds will be utilized for building the necessary infrastructure for sales, service, and spare parts to support a near doubling of domestic sales volumes. Additionally, infrastructure for exporting a significantly larger volume of vehicles will need to be strengthened. Converting production lines to enhance flexibility and investing in research and development, particularly in the realm of internal combustion engine (ICE) cars, will also necessitate additional capital expenditures.

The company's capex plans encompass the development of 10 to 11 new models with various fuel options. MSIL also plans to allocate significant capital to the production of electric vehicles (EVs) and SUVs. Furthermore, the company is exploring investments in the production of compressed bio-gas (CBG), both for its own use and for commercial sale as a fuel.

The company recalled that in 2014, it had proposed to shareholders that Suzuki Motor Corporation (SMC) should take charge of financing and executing the creation of new production capacity in Gujarat. This move aimed to allow MSIL to channel its managerial and financial resources toward strengthening its marketing, sales, and service infrastructure, rather than diverting them towards Gujarat production capacity.

SMG subsequently entered into a contract manufacturing agreement with MSIL, committing to supplying its entire production to MSIL for sale. Importantly, the contract stipulated that SMG should operate on a 'no profit-no loss' basis and not accumulate any surplus of any kind. This related party transaction was approved by the majority of minority shareholders, and the contract manufacturing agreement was executed in 2015. Initially set for a 15-year period, it was agreed that in the event of termination, MSIL would have the first option to acquire 100 percent of SMC's equity in SMG at its net book value.

HBL