Chennai, Aug 8 (IANS): The Board of automobile major Maruti Suzuki India Ltd on Tuesday decided to issue equity shares on a preferential allotment basis to the Japanese parent Suzuki Motor Corporation as the consideration for acquiring Suzuki Motor Gujarat Pvt Ltd (SMG).

The Board also approved the termination of the contract manufacturing agreement with SMG.

The SMG with a production capacity of 7.5 lakh units per year was promoted by Suzuki Motor Corporation to be a contract manufacturer of vehicles for Maruti Suzuki India several years back.

The final acquisition price will be decided based on the contract manufacturing agreement.

The listed Indian company also said the equity dilution will also be lower. Maruti Suzuki India will issue the equity shares to Suzuki Motor Corporation equal to the book value of SMG as calculated according to the contract manufacturing agreement and subject to valuation reports and the law.

According to Maruti Suzuki India, its Board evaluated the two available options for acquiring the Suzuki Motor Corporation’s equity in SMG: (i) payment in cash and (ii) issue of equity shares on a preferential allotment basis.

The impact of both options on the profitability of Maruti Suzuki India, the earnings per share and the dividend payment to shareholders was considered for each year up to 2031 based on assumptions, the Indian company said.

According to Maruti Suzuki India, comparing the two options, the Board concluded the issue of equity shares to Suzuki Motor Corporation would clearly be beneficial to minority shareholders and to the company.

Last fiscal, SMG clocked a turnover of Rs.31,852 crore up from Rs.24,440 crore in FY22 and Rs.15,850 crore in FY21.

The transaction is expected to be completed before March 31, 2024.

As per the contract manufacturing agreement, Maruti Suzuki India could buy SMG at the book value.

The book value is about Rs.12,755 crore, R.C. Bhargava, Chairman, Maruti Suzuki India had said earlier.

Currently Suzuki Motor Corporation holds 56.48 per cent stake in Maruti Suzuki India.

Maruti Suzuki India has a production capacity of about 2 million and it needs to increase that to 4 million by 2030-31 and the company is looking at various locations.