Government to completely exit from Maruti
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Government to completely exit from Maruti

The sale of its stake in the 'People's Car' will fetch the Govt Rs 2,700 cr, report M Rajendran & Deepak Joshi.

india Updated: Dec 22, 2006 19:52 IST

It is the end of an era. The government will henceforth have nothing to do with Maruti, the 'People's Car' it initiated more than two decades ago, and which, despite some early hiccups, proved such an unimaginable success.

The Cabinet Committee on Economic Affairs (CCEA) that met on Thursday agreed to the sale of Government's remaining 10.27 per cent stake in Maruti, which is likely bring in Rs 2,700 crore to the exchequer.

Most of the government's initial stake had been sold to its partner in the project, the Japanese car major Suzuki, and various financial institutions, much earlier.

Maruti was first conceived of by the late Sanjay Gandhi, though his effort to manufacture one met with little success. Maruti Udyog (MUL) was finally established in February 1981 - 10 months after Sanjay Gandhi's death - through an Act of Parliament.

It was an idea whose time had come, as it matched perfectly the growing middle class demand for an affordable car. Suzuki was chosen from among seven prospective partners worldwide and a licence and Joint Venture agreement was signed between the Government and the Japanese company in October 1982. The first car rolled out on December 14, 1983.

Though Maruti was an unqualified success, the relationship between the two partners was often mired in tribulations and heartburn, particularly over the transfer of gearbox technology, which resulted in a deadlock in the functioning of the company. Finally, the government thought it better to dilute its stake in the equal joint venture.

The present decision marks the culmination of the Government's gradual withdrawal from the auto major, which, despite the entry of a host of new players in recent years, commands a staggering over 50 per cent share in the Indian car market. In June 2003, the government sold 27.5 per cent of its stake in Maruti to the public at a price of Rs 125 per share to garner Rs 993 crore.

The sale of the remaining 2,96,79,689 shares - as on September 31, 2006 - in Maruti, is the second such exercise this year. Suzuki, the Japanese automobile major has a majority 54.2 per cent stake in Maruti at present.

Early this year, the Government had year mopped up Rs 1,567 crore from sale of eight per cent equity in Maruti to banks and financial institutions at an average price of Rs 678.24 share.

Maruti shares were trading at Rs 926, up by three rupees, on the BSE at the end of the day. The buoyant Sensex has ensured that it gets nearly double that amount from its remaining 10.27 per cent stake, as its stock price has risen over 35 per cent from the sale price in January.

Email M Rajendran: rajendran.manoharan@hindustantimes.comand DeepakJoshi:

First Published: Dec 22, 2006 19:52 IST