Maruti Suzuki India (MSIL) Maruti Suzuki India (MSIL) on Monday said the regular capex in the existing plants at Gurugram, Manesar and Gujarat will continue, and the total capex till 2030-31 could be as much as ₹1.25 lakh crore.

The amount for capex in 2022-23 was around ₹7,500 crore, MSIL said in a presentation for shareholders, analysts and proxy advisors for acquisition of Suzuki Motor Gujarat (SMG).

“Additional cash flows from the new capacities being added would come but there would be a lag between investments and income. Management believes that cash should be first available and not spent in anticipation of incomes,” the company said.

If excess cash accumulates at any time, and there are no available investment needs, it can then be used appropriately, including increasing the dividend payout band and payment of higher dividends, it said.

Pay out of over ₹12,500 crore for Suzuki Motor Corporation (SMC, Japan) shares in SMG would, besides reducing profits, EPS and dividend payments, could also create a shortage of cash.

“MSIL has from its inception followed a policy of accumulating cash reserves by being frugal in all its expenditures. The emphasis on increasing productivity and reducing waste, as well as making improvements by employee suggestions have all contributed to building cash reserves, the company said.

MSIL will need about ₹45,000 crore to create a capacity of two-million units. This is based on current costs and a small amount for cost escalation, it said adding that the funds would be needed for creating the sales, service and spare parts infrastructure to almost double domestic sale volumes.

The infrastructure for exporting the much larger volume of cars will also have to be strengthened. The conversion of production lines to have greater flexibility will need additional capex. Research and development will need additional outlays to enable most of development work relating to internal combustion engine (ICE) cars being done by MSIL.

“Capex will be needed to develop 10-11 new models, with different fuel options in this period. Production of electric vehicles (EVs) and SUVs will also need larger capex. MSIL could consider investing in the production of compressed bio-gas (CBG) both for its own needs and also for sale as a fuel,” the company further explained.

In 2014, MSIL made a proposal to shareholders that SMC, instead of MSIL, would finance and implement the creation of new production capacity in Gujarat.

The main reason was to enable MSIL to use its managerial and financial resources for strengthening its infrastructure for marketing, sales and service, instead of diverting it to create production capacity in Gujarat.

SMG entered into a contract manufacturing agreement with MSIL to supply the entire production for sale to MSIL. SMG was required by contract to work on a ‘no profit-no loss’ basis and not accumulate any surplus of any kind.

This being a related party transaction, was approved by the majority of minority shareholders and the CMA was signed in 2015. The CMA was initially for a period of 15 years. In the event of termination, MSIL would have the first option to acquire 100 per cent of SMC’s equity in SMG at net book value.

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