In an interview to CNBC-TV18, Basudeb Banerjee, Quant Broking shared his views on Maruti Suzuki and why he is not negative on the disclosures given by the company's management over their Gujarat plant.
Below Basudeb Banerjee’s interview with Anuj Singhal and Ekta Batra on CNBC-TV18
Anuj: What is your call on Maruti Suzuki now? You have seen a lot of brokerages come out with their views, some are still maintaining their buy calls but what is your call?
A: I don’t find anything incrementally negative over the disclosures that came out yesterday. All the points that you were mentioning earlier were more or less in line barring the fact that the management never sacrosanctly said that Suzuki Japan is going to infuse fresh equity for all the incremental capex needs beyond the first stance of Rs 3,000 crore.
It was clearly said that there is high probability that Maruti Suzuki would be bearing the cost of capex through the mark-up cost on the cost of production from the models made out of the Gujarat plant. They have reiterated on that aspect, so I don’t find there is anything new per se.
In fact the positive part is that in this disclosure they have said that in case this contractual obligation gets terminated, the fixed assets will be transferred to Maruti Suzuki India’s books at a transfer pricing agreement. If you look at it from a margin aspect, this will be EBITDA margin dilutive, this will be EBIT margin dilutive but broadly at a free cash flow margin perspective, the extent of impact will be very much negligible.
At the end of the day, either Maruti India was going to do the capex or we were funding the capex to the Gujarat plant.
Ekta: Multiple brokerages have clearly said that this was not communicated by Maruti earlier and these are fresh concerns, which have come up with regards to the future capex, which you said is known and also the fact that the Gujarat unit will have to generate net profits contrary to the earlier understanding, do you think there is a bit of a corporate governance issue considering the miscommunication that has taken place twice already?
A: No, I don’t think that at all. It was clearly said by the management that there is a very high probability of Maruti India bearing the cost of capex through the costing of the product source from Gujarat and there is a slim probability that Suzuki might infuse fresh equity in years of weak demand and high capex requirement. In fact, in this weekend mailer, Maruti has said that in case of requirement, Suzuki might infuse fresh equity for incremental capex needs but they are maintaining the stance of this Gujarat plant facilitating the majority of the incremental capex needs. So, I don’t see any element of corporate governance issue or this information not being known to the market earlier.
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