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Cummins India is doing a Maruti, according to a recent report by proxy advisory Institutional Investor Advisory Services (IiAS), but it’s being a lot stealthier about it.
The report was in reference to a conference call on May 26 between Anant Talaulicar, Vice-President, Chairman and Managing Director, Cummins India, and with investors, in which the former mentioned the closure and sale of the company’s Daman facility.
He also said the company was debating over the moving of its K19 engine facility from Seymore in the UK, to the Phaltan facilty in Maharashtra, which is wholly owned by the parent company Cummins Inc and is not part of the listed Cummins India. This move may lead to the possible closure of its Cummins India-owned Korthrud facility (also in Maharashtra), where the K19 engines are currently being manufactured, to bring about “the best cost structure and best margin opportunities,” Talaulicar said. Cummins India manufactures diesel and natural gas engines for industrial and automotive use.
The situation is similar to what Maruti Suzuki had engineered last year, when the company has proposed setting up a manufacturing arm in Gujarat, which would be wholly-owned by the Japanese parent Suzuki, while the domestic listed company would operate as a trading arm.
‘Violates corp fairness’ The move by Cummins India, IiAS says, violates several principles of corporate fairness, including that the board is not protecting the interests of minority shareholders and that it is wrongly focusing on rationalising profits for the group and not for the domestic listed entity. Additionally, it said, “The company is transferring businesses and profits from the listed Indian arm to the parent company in steps…as the Indian manufacturing base expands, the benefits of this expansion will flow disproportionately to the parent and not the Indian arm.”
IiAS recommends that foreign-owned companies who wish to make similar arrangements must either offer minority shareholders a share swap (through Indian depository receipts) or must make them a cash offer.
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