Maruti to pay royalty to Suzuki in INR

Maruti Suzuki India, on Thursday, said it would pay royalty to parent Suzuki Motor Corp for all future models in Indian rupees instead of Japanese yen to mitigate risks due to foreign exchange fluctuations.

Addressing the company’s 33rd annual general meeting in New Delhi, its Chairman R. C. Bhargava said for all future models royalty to Suzuki would be paid in Indian rupees and not in yen so that the company was “not exposed to the variation in the exchange rate which has been happening in the past.”

Suzuki owns about 56 per cent stake in Maruti, for which the latter pays royalties in yen for use of technical know-how and brand name.

With the company enhancing its research and development capabilities and playing greater role in joint product development with Suzuki, the royalty payout would also decline, he added.

In the first quarter ended June 30, 2014, Maruti Suzuki India (MSI) had paid royalty of Rs.689 crore, which was 6.2 per cent of net sales.

The company, which is investing Rs.2,000 crore on a research and development facility, including a test track at Rohtak in Haryana, will enter the SUV segment early next year.

“Maruti has not been present in the SUV segment and Suzuki of Japan has been aware of it. Early next year, we will launch our SUV and a compact SUV will follow a year later. With these we will have sizable presence in the SUV segment and fill unutilised capacity at Gurgaon and Manesar plants,” Mr. Bhargava said.

On the Gujarat plant, he urged the shareholders to exercise their franchise favourably in the voting next month to let Suzuki own and invest at the facility.

He said it was a “win-win situation” and would enable MSI to invest on strengthening sales and after sales network and enhancing R&D capability.