Maruti to focus on diesel cars

Passenger car market leader Maruti Suzuki India Ltd. (MSIL) on Tuesday announced merger of a diesel engine manufacturing company with itself and said it would focus on the diesel car segment to meet growing demand.

"We will take diesel engine capacity to six lakh from the current three lakh by mid-2013. The merge will provide cost-reduction and allow production planning under a single management," Shinzo Nakanishi, managing director and chief executive officer, said after the company's top management at its board meeting approved the merger of Suzuki Powertrain India Ltd. (SPIL) with Maruti Suzuki.

The company is currently using only 70 percent of its daily petrol engine manufacturing capacity, as petrol powered car sales have been severely hit.

Nakanishi said: "The gap between petrol and diesel has increased significantly. The diesel car penetration in the market went up to 47 percent last year. In May our diesel cars penetration got up to 55 percent."SPIL is a subsidiary of Suzuki Motor Corporation, Japan.

The company supplies diesel engines and transmission systems to Maruti Suzuki which also holds 30 percent stake in the firm. The company which has 2,592 employees made a net profit of Rs.115 crore last year with a turnover of Rs.4,550 crore.

Maruti Suzuki said the addition of a profit-making entity will help its books."Initially the company must have faced some problems because of the capital intensive nature of work they have. But it has consistently been making profits since the last three years," Ajay Seth, chief financial officer, Maruti Suzuki said.

The company said that key initiatives like sourcing, localisation, production planning, manufacturing flexibility and cost reduction will be achieved by merger. Other forms of synergy obtained in areas such as finance, capital structure, administration and reduction in transaction cost.

The merger will also increase the stake of Suzuki Motor in Maruti Suzuki from 54.2 percent to 56.2 percent.

Maruti Suzuki will swap share with Suzuki Motor on the ratio of 1:70, whereby Suzuki Motor would get one MSIL share of Rs.5 for every 70 shares of SPIL with a face value of Rs.10 per share."It is expected that the necessary regulatory approvals and legal requirements for the merger will be completed by December, 2012. Once the merger is approved, the books of accounts of SPIL will be merged with MSIL with effect from April 1, 2012," the company said in a statement.