Foreign exchange fluctuations coupled with unfavourable Indian economic conditions for car sales may lead Maruti Suzuki India (MSIL) to pay less royalty to its parent Suzuki Motor Corporation (SMC) Japan.
“It may be around five per cent of net sales, which will go to Suzuki Japan in the next quarter or may be in near future,” Kenichi Ayukawa, Managing Director and Chief Executive Officer, told Business Line .
MSIL is expected to pay better royalty in the coming years with the sales expected to improve and also the company’s expansion plans becoming a reality.
“The royalty payment to SMC comes to around 5.50 - 6 per cent every quarter and on a yearly basis also the figures are similar. In the future, the royalty will depend on the exchange rates,” said Ajay Seth, Chief Financial Officer.
In the first quarter that it closed (April-June) recently, the company said it paid 6.10 per cent (around Rs 601 crore) of the net sales to SMC as royalty.
MSIL’s net sales (net of excise) during the period fell 5.1 per cent to Rs 9,995 crore.
Suzuki Powertrain
However, its net profit rose by 49 per cent to Rs 631.60 crore in the quarter.
Seth said since Suzuki Powertrain India (SPIL) is also part of the company now, revenues earned from them will also be included in the royalty to SMC.
SPIL that manufactures engines was merged into MSIL from April this year, after completion of all the formalities on March 17.
One of the reasons for MSIL’s increase in the net profit was due to the benefit from merger of SPIL with the company, it had said in its quarter results.
According to analysts, MSIL’s low in net sales was because of the company’s inability to come out with new products this year. And, that was the reason it may pay lesser royalty to its parent company.