How serious is the conflict of interest in Maruti Suzuki


Indian Market
by 5paisa Research Team Last Updated: 2022-12-09T10:47:00+05:30

You would perhaps wonder as to what is this conflict of interest with Maruti Suzuki. This is something that has been recently highlighted by the proxy advisory firm, IIAS. Now, Institutional Investor Advisory Services (IIAS) is a proxy advisor that advises shareholders on whether certain resolutions moved by the board are in sync with corporate governance standards and whether they are in the larger interest of shareholders.

In the case of Maruti Suzuki, the conflict of interest comes from a very unique structure that Suzuki enjoys in India. Suzuki of Japan is the majority shareholder in Maruti Suzuki, which is the face of the Maruti car in India.

At the same time, Suzuki also has a 100% subsidiary with its plant located in the state of Gujarat, which is a 100% subsidiary of Suzuki Motor Corporation. It is this dichotomy of ownership that IIAS has pointed out.

Let us get back to the current case. Recently, Suzuki Motors Gujarat had announced an investment of Rs.10,400 crore into electrical vehicles (EVs), which is the big trend globally and also in India.

This is in stark contrast to the views expressed by Mr. RC Bhargava of Maruti Suzuki, who has vehemently believed that EVs in India lack the scale to become a viable business proposition in the long run. Bhargava dismissed allegations of conflict.

IIAS, rightly so in this particular case, has raised serious questions regarding the decision of Suzuki Motor Corporation (SMC) to invest directly in the EV project. According to IIAS, the investment should ideally have happened through Maruti Suzuki India.

However, by making the investment through its 100% subsidiary, IIAS thinks that Suzuki has undermined the interests of Maruti Suzuki and its public shareholders, who are denied this diversification.

IIAS has pointed out that such conflicts of interest are normal if the same global company is allowed to have a 100% subsidiary and also a listed group company in the same market.


The recent announcement by Suzuki Motor Gujarat to invest Rs.3,100 crore to increase capacity for battery EV manufacturing and Rs.7,300 crore for construction of plant vehicle batteries is a classic example of this conflict, since Maruti Suzuki is already listed on the bourses.

Bhargava’s argument is that EVs made by Suzuki Motors Gujarat will be eventually sold by Maruti Suzuki also. However, it may not be that simple as it would be unfortunate if Suzuki Gujarat ends up side-lining Maruti Suzuki to further its own interests.

IIAS had asked shareholders to reject the establishment of Suzuki Motor plant in Gujarat, but shareholders had reject that advice and voted overwhelmingly in favour of the proposal. 

Whether Maruti Suzuki misjudged the EV market or whether it virtually allowed Suzuki to directly snatch the initiative remains to be seen. But IIAS has a point.

If Maruti shareholders lose out on the valuation game due to Suzuki Motors Gujarat, then only have themselves to blame. In the last 2 years, the stock of Maruti Suzuki has struggled as it has opted to stay away from launching EVs. The gap has been filled by others like Tata Motors.

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