Maruti Suzuki India Ltd. has received board approval to proceed with a share swap option to acquire a stake in Suzuki Motor Gujarat Pvt. The swap ratio will be based on Suzuki Motor Gujarat’s net book value at the end of FY23 and Maruti Suzuki’s closing price on June 30. According to calculations, Maruti will issue 1.3 crore shares to parent company Suzuki Motor Corp., resulting in a 4.1% stake on a fully diluted basis.
By opting for a share swap instead of cash, Maruti expects its profit after tax to grow at a rate of 12.5% each year. The company believes this approach will be more earnings per share (EPS) accretive compared to a cash payout to the parent company. Additionally, by choosing the swap option, Maruti will continue to earn interest income, and the equity dilution will be minimal.
Shareholder approval is required for the transaction, which will be obtained through an Extraordinary General Meeting or postal ballot. The date for this approval process has yet to be determined.
The company predicts that after acquiring Suzuki Motor Gujarat, its profit after tax will exceed Rs 19,000 crore in FY31. This projection assumes a dividend payout ratio of 40% and an interest rate of 7%.
Overall, Maruti Suzuki India Ltd. has chosen the share swap option for its potential benefits, such as ongoing interest income and minimal equity dilution. The transaction is expected to be EPS accretive, resulting in a higher profit after tax for Maruti by FY31.
It is important to note that the company’s assumptions regarding profit after tax and future growth rates should not be considered as official projections. Maruti Suzuki India Ltd. is focused on maximizing shareholder value through strategic decisions and believes the swap option aligns with this goal.
The announcement of the share swap option marks a significant development for Maruti Suzuki India Ltd. as it moves forward with expanding its stake in Suzuki Motor Gujarat Pvt. The company remains committed to ensuring the success and profitability of the transaction, pending shareholder approval.
