Maruti Suzuki Share Swap For Gujarat Plant Will See 4% Equity Dilution

Maruti Suzuki India Ltd.'s board has approved the share swap option to acquire stake in Suzuki Motor Gujarat Pvt.

The swap ratio will be based on the Suzuki Motor Gujarat net book value of Rs 12,755 crore at the end of FY23 and Maruti Suzuki's close on June 30 at Rs 9,789.05 apiece.

According to BQ Prime calculations, Maruti will have to issue 1.3 crore shares to parent Suzuki Motor Corp., amounting to a 4.1% stake on a fully diluted basis. The exact shares will be based on the price on the record date for the EGM or postal ballot. Post the transaction the parent stake will increase by 1.8% in the company to 58.3%.

The company has assumed profits of more than Rs 19,000 crore in FY31 after the acquisition of Suzuki Motor Gujarat from the parent.

The company, while disclosing the reason why it opted for a share swap instead of cash, assumed its profit after tax would grow at 12.5% each year. The PAT figures should not be taken as MSIL projections of profit, the company said, while showing the impact being more EPS accretive, compared to the cash payout to the parent for the stake.

If the company had opted for cash payments, its cash profit would have been lower because of the loss of interest income. The difference between swap and cash PAT would occur under different growth rates of profit, it said.

The company's preference for the swap option is because there is a continued additional earning of interest income and the equity dilution is very low, it said, adding that the transaction will be EPS accretive between Rs 7 in FY24 to Rs 20 per share by FY31. This means profit after tax for Maruti will be higher by Rs 1,400 crore in FY31.

The company has assumed a dividend payout ratio of 40% on the assumed PAT while assuming an interest rate of 7%.

The transaction is subject to shareholder approval through an Extraordinary General Meeting or postal ballot, the date of which is yet to be firmed up.