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Maruti divestment stirs a hornet's nest

P Vaidyanathan Iyer

The minister of state for heavy industry Vallabhbhai Kathiria's new proposal for divesting stake in Maruti Udyog has sparked off a debate in the government whether equity infusion by Suzuki or its partner General Motors, USA was the best strategy for meeting the financial needs of new model launches.

Top government officials said that Maruti can well manage to launch new models in a phased manner without any additional equity infusion.

"Maruti's debt-equity ratio is just about 0.2. It can easily leverage its equity to raise debt and fund new product launches," a senior official said. While the total paid-up capital of the auto major is Rs 1.32 billion, its reserves are to the tune of over Rs 27 billion as on March-ended 2000.

Kathiria had on Tuesday said that the government will not invest in Maruti anymore. Suzuki can infuse capital into Maruti and raise its stake in the company. The government's holding in Maruti would drop subsequently.

While the government holds 49.5 per cent stake in Maruti, Suzuki holds 50 per cent with the balance being held by the employees' trust.

Officials said that Maruti plans to invest about Rs 6 billion during the current financial year. It plans to launch a new model this year or early next fiscal.

"The bulk of the funding can come in the form of debt with the balance being raised through internal accruals," the official said.

Sources further said that the launch of a slew of models during 2000-01 impacted the company's finances on account of higher depreciation charges and financial costs. Last fiscal, the company launched three new models, Alto, WagonR and Baleno.

"However, this was necessary since Maruti had not launched any new model for quite some time," they said.

Sources said that the company would space the launch of new models in the future. A phased launch of models will not impact the company's finances, they added.

Maruti, which had posted operating profits for the last financial year would certainly record net profits this year, sources said. It was, however, unlikely that the company would register net profit in the first half of 2001-02. This is also one of the primary reasons that the ministry is averse to hurry up the divestment of Maruti in the current fiscal, they said.

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