Maruti to make royalty payments to Suzuki in rupees for future models

Maruti Suzuki India, the country's largest carmaker, would make royalty payments due to parent Suzuki Motor Corp for all future models in rupee denominations to limit risks from foreign exchange fluctuations.

"On all future models the royalty will be expressed in rupees...and not (in) the yen so that we are not exposed to the variation in the exchange rate which has been happening in the past," Maruti Chairman RC Bhargava told shareholders at the company's annual general meeting in the national capital.

Maruti, which is over 56 per cent-owned by Suzuki, currently pays royalties in yen for use of technical know-how and its Japanese parent's brand name. The company paid Rs 24.86 billion ($412 million), or nearly 6 per cent of its net sales, in royalties for the year to March, according to its annual report for the year.

In February, some large domestic investment funds, challenging a plan by Maruti to source cars from a plant in Gujarat to be built by Suzuki, said the royalty paid by Maruti to its Japanese parent was too high, a complaint made previously by minority investors.

Maruti, which has said it will take minority shareholders on board before progressing on the new Gujarat plant, expects the factory to be commissioned in 2017, chairman Bhargava said at the shareholder meeting.

Bhargava also said Maruti would invest in increasing its research and development capabilities, and the work done locally would be taken into account while calculating royalty payments.

"That will mean that our expenditure on R&D will get rewarded in terms of lower royalty rates," he said.

(Reuters)