The Board, in its meeting held on 31st July, 2023 had approved termination of the contract manufacturing agreement (CMA) with Suzuki Motor Gujarat Private Limited (SMG) and acquiring the shares of SMG from Suzuki Motor Corporation (SMC) at a price to be determined in accordance with the CMA and all applicable laws and regulations. The Board decision was subject to all legal and regulatory compliances including minority shareholders’ approval.
Today, the Board evaluated the following two available options for acquiring the SMC equity in SMG: (i) payment in cash and (ii) issue of MSIL equity shares on a preferential allotment basis. The impact of both options* on the profitability of MSIL, the earnings per share and the dividend payment to shareholders was considered for each year up to 2031.
The data showed that
- PAT of MSIL would be higher in the share swap option in each year increasing by over Rs 1400 crores in 2030-31
- the EPS would be higher in the swap option starting from Rs 7 per share and going up to Rs 20 per share in 2030-31 and
- the dividend payable, with the same pay-out ratio, would be higher in the swap option.
This is primarily because in the swap option while there is a continued additional earning of interest income, the equity dilution is very low. Please see table below.
The Board therefore concluded that the option of acquiring SMG shares by issue of MSIL equity shares to SMC would clearly be beneficial to minority shareholders and to MSIL.
* Assumptions and disclaimers
- PAT for 2022-23 is actual. The future PAT figures are based on an assumed 12.5% growth each year. The PAT figures are NOT to be taken as MSIL projections of profit. Cash profit is lower because of loss of interest income. The difference between swap and cash PAT would occur under different growth rates of profit also.
- The total number of shares of MSIL after swap, are based on book value of SMG at end of 2022-23 and MSIL share price of 30th June 23. The actual would depend on when the date of the EGM/postal ballot is fixed by the Board. The comparison would be similar.
- The dividend amount is based on a 40% payout ratio on assumed PAT. Results would be similar on a different pay-out ratio.
- Interest rate of 7% is assumed.
The Board approved the issue of MSIL equity shares to SMC to pay for the SMG shares. Further it was decided that:
- Minority shareholders’ approval would be sought at an EGM or through postal ballot on a date to be fixed for i) terminating the CMA ii) acquiring SMG shares from SMC and iii) approving this acquisition by issue of MSIL equity shares equal to the book value of SMG as calculated according to the CMA and subject to relevant valuation reports and in compliance with the applicable regulatory and statutory framework including FEMA/SEBI guidelines,
- The approval of all shareholders would be sought at the same EGM or through postal ballot for issue of equity shares on preferential basis to SMC.
SOURCE: Maruti Suzuki
