Institutional investors cut stake in Maruti Suzuki

Institutional investors have reduced their holdings in Maruti Suzuki, which had recently run into opposition from investors over setting up of a plant in Gujarat.

As per the latest shareholding data for June quarter, foreign investors, such as Credit Suisse and Norway's Government Pension Fund Global, are no longer holding more than 1% stake in Maruti.

Credit Suisse and the Government Pension Fund Global each held 2.37% and 1.05%, respectively, as on March quarter. Among domestic investors, ICICI Prudential Life Insurance Company has cut its stake from 1.81% to 1.61% in June quarter.

Institutional investors have been reducing their stake in Maruti since the March quarter after the carmaker announced the Gujarat deal in January. LIC, the largest institutional investor in Maruti, cut its stake from 6.93% as of December quarter to 6.63% in March quarter. As on June quarter, the insurer continues to hold 6.63%.

Maruti’s announcement that a Gujarat plant will be set up by a 100% subsidiary of Suzuki Motor Company, Japan (Suzuki), was seen as negative to the interests of minority shareholders. “Suzuki will fund the first phase of the Gujarat plant and Maruti will indirectly fund the second phase, through the price of the cars purchased. Yet, shareholders of Maruti will not have an equity stake in the Gujarat entity, which will continue to be 100% owned by Suzuki,” Institutional Investor Advisory Services said in a note.

In March, Maruti issued a clarification to address investor concerns and said it will seek minority shareholders’ approval over the deal. The company added that Suzuki will make zero operating margins on cars manufactured at the Gujarat plant, i.e., Suzuki will not sell cars to Maruti at a markup price. Further, when the contract between Maruti and Suzuki expires, the facilities of the Gujarat plant would be transferred to Maruti at book value, and not fair value, determined by independent valuation. As per agency reports, Maruti launched a roadshow in June to explain the nitty gritty of the deal to investors.

YTD, the Maruti scrip has gained 45.25%. Experts remain upbeat on Maruti’s prospects as they believe the carmaker would benefit from a revival in the domestic demand. “Maruti is well-placed to benefit from an upturn in domestic 4W demand, particularly in entry level compact cars, which account for 24% and 35% of industry and MSIL’s volumes, respectively. We raise our FY15E/16E EPS by 5-7% to R136/165. A blue-sky scenario suggests a potential stock price level of R3750 over the next two years,” Deutsche Bank said in a recent report.