Maruti Suzuki's royalty payments to the Japanese parent, Suzuki Motor Corporation, may almost halve in about two to three years, as the company contributes more extensively towards the latter's future model development.
With the carmaker's own research and development (R&D) centre at Rohtak expected to start operations by September next year, talks on future royalty payouts have already begun at the top level, sources close to the development told Business Line .
At present, the royalty rate ranges from about 5 per cent (of net sales) for domestic sales to 6 per cent for exports. This is because most of the engine and platform development has been done in Japan.
Maruti is looking to bring this down to around 3-4 per cent in the next two years, sources said, though the extent of savings on royalty depends on the level of work done locally on models sold in other markets.
While still many years away, there is also a possibility of Suzuki paying royalty to Maruti for a model developed in India.
“The royalty rates will go down from the current levels, but by how much that will happen depends on the final outcome of discussions,” Mr Ajay Seth, Chief Financial Officer, said.
With such a strategy, about 150 Maruti engineers have been sent to work on “live projects” at Suzuki's home base in Hamamatsu, Japan. In practice, over the last 4-5 years, Maruti's engineers have significantly contributed in the development of models such as the new Swift and the Ertiga multi-purpose vehicle, the company says.
“The vision is to develop design capabilities for our new centre in Rohtak, so that going forward we can jointly work with Suzuki Japan on developing new models, platforms and powertrains,” Mr I.V. Rao, Managing Executive Officer for Engineering and Head of R&D, said.
The car-market leader aims to invest up to Rs 2,400 crore at the 600-acre Rohtak facility, for which the Haryana Chief Minister, Mr Bhupinder Singh Hooda, laid the foundation stone on Monday. From the total, about Rs 750 crore has already been invested and a further Rs 900 crore is allocated for the current fiscal.
At first, the testing facilities with various terrain options are being built, followed by design facilities for both cars and powertrains. With plans to locally develop a small car from scratch, the R&D headcount is also being increased with the new facility coming in place — from 1,060 to 1,300 by the end of this fiscal.
Though the first phase of R&D will start next year, any significant contribution to Suzuki's new models is likely only by about 2014-15, the Chairman, Mr R.C. Bhargava, said.
Maruti Suzuki shares on the Bombay Stock Exchange were down 1.12 per cent to Rs 1,375.30 on Monday.