Maruti skids and hits red signal

Maruti Suzuki is amongst the top losers of the day currently. The stock is down almost 2% at Rs.4506 with an intra day low of Rs.4492.

The market is not very happy with its decision passed two days ago to go ahead with the contract manufacturing plans. The company said that its Board has approved a contract manufacturing agreement for a period of up to 30 years proposed to be signed with an arm of parent Suzuki Motor Corp (SMC) for the upcoming plant in Gujarat. Of course, this is subject to getting approval from the minority shareholders of MSIL, which is currently the bone of contention.

The shareholders are miffed because Suzuki is to arn 17% ROCE on the Gujarat plant and this plant would have zero cash flow. The fund houses/institutional investors have been pretty unhappy about this development and all around seven of them have raised the red flag. Post this, Maruti decided to seek minority shareholders' approval after tweaking some of the earlier proposals for the controversial Gujarat plant. To get this to go through, 75% of the minority shareholders who have a 44% stake in the company, need to give their nod.