What is the conflict of interest issue raised by IIAS about Maruti and will it impact stock prices?

An important issue that has come up in the last few days on Maruti is the conflict of interest issue between Maruti Suzuki and Suzuki Motors in Gujarat. You would be aware that Suzuki Motors Gujarat was floated as a 100% subsidiary of Suzuki Motors, Japan. At that time, proxy advisor IIAS had urged shareholders to vote against the idea. However, shareholders had overwhelmingly voted for the proposal. That has become a big challenge today.

Look at this dichotomy that is creating the conflict of interest. For example, Maruti Suzuki remains bearish on the prospects of EVs in India, as stated by RC Bhargava. At the same time, Suzuki Motors is investing Rs.10,400 crore in its Gujarat plant to manufacture electric vehicles or EVs and batteries. IIAS is of the view that this foray should have been done through Maruti, instead of Suzuki Motors Gujarat. That is going to be the real conflict issue.

How will this impact the stock of Maruti? I think the biggest risk for Maruti is from this conflict of interest. The risk factor is that Maruti shareholders lose out if the futuristic value accretion happens in Suzuki Motors Gujarat. Maruti management may have been myopic in ignoring the EV trend? Input costs are not a structural issue and market share is just an outcome. The real structural risk to Maruti arises from this conflict of interest.