The Telegraph
Since 1st March, 1999
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Maruti flags off IPO roadshow
Issue floor price set at Rs 115

Mumbai, May 30: The comatose primary market is expected to spring to life with Maruti Udyog’s initial public offering of equity to raise a sum of over Rs 800 crore.

The success will set the tone for similar flotations planned by several government-owned companies, such as Bharat Petroleum Corporation Limited and Nalco.

The 7.2 crore shares (of Rs 5 each) that the government will offer to investors is underwritten by Suzuki Motor Corporation, which will lend support at a minimum price of Rs 115 if the issue is under-subscribed.

The amount raised by selling what constitutes 25 per cent of the Maruti’s equity — at least Rs 800 crore — will go entirely to the government, which stands to reap a rich harvest, having invested Rs 45 crore when the car maker was set up as a joint venture with Suzuki. The Centre has already pocketed Rs 1,000 crore as control premium from partner Suzuki Corp.

Hitting the streets for the pre-issue hoopla, Suzuki Motor chairman Osamu Suzuki said the auto industry has driven the economy of many countries. Suzuki, who earned a reputation for giving the world some of its best petite sedans, said his vision revolves around small cars.

Some are sceptical if the high floor price of Rs 115 will bring in investors; others feel it is appropriate. Merchant banker Uday Kotak, whose company Kotak Mahindra Bank is managing the IPO, said the price is right. He pointed to Tata Engineering, which was bleeding till last year, but now quotes at higher price earnings.

Arun Kejriwal, an analyst tracking the auto sector, was one of those who felt Maruti was asking for too much. He said he had fears of limited retail participation. The fears are not shared by merchant bankers, who said the IPO will find more than its share of takers. Whether retail investors will be among them is the question.

Those who threw their weight around Maruti contend that a company that will make five lakh cars this year and earn good money is justified in setting the premium. Company managing director Jagdish Khattar was among them. “We make 1700 cars per day which works out to more than five lakh cars every year.”

“Surely, it should derive a good premium,” Avinash Gorakshakhar of Emkay Shares said, arguing even component suppliers are quoting at attractive premiums.

Further, the share capital of Rs 144.50 crore, modest in relation to the size and scale of Maruti’s business, also increases the chances that the issue will sail through.

Only two car companies — Indica maker Tata Engineering and Ambassador producer Hindustan Motors — are listed on bourses.

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