To meet the increasing demand of its diesel-powered models, Maruti Suzuki India Limited (MSIL) has approved the proposal to merge Suzuki Powertrain India Limited (SPIL) with the company. SPIL, which supplies diesel engines as well as transmissions for vehicles to MSIL, is a subsidiary of Suzuki Motor Corporation (SMC), Japan.

With the merger, MSIL will be able to bring its entire diesel engine capacity under a single management control. This move will enable the company to strengthen the business, including sourcing, localisation, production planning, manufacturing flexibility and cost reduction. It also promises benefits for the combined entity through synergies in areas like finance, capital structuring and administration and consequent reduction of transaction costs.

Post-merger, SMC’s share in MSIL will go up by 2 percent, from 54.2 to 56.2 percent. The merger will be effected through a share swap and Maruti has confirmed there will be no cash outflow from its side. Suzuki Powertrain supplies 3 lakh diesel engines and transmissions to Maruti on an annual basis. In addition, Maruti will source additional 1 lakh diesel engines annually from its JV partner Fiat, making it 4 lakh diesel engines annually.

It is expected that the necessary regulatory approvals and legal requirements for the merger may be completed by December 2012. The two companies – MSIL and SPIL – will work jointly to integrate the two organisations.

Maruti Suzuki India Ltd (MSIL) is further investing Rs 1,700 crore to set up a new diesel engine plant at its Gurgaon complex that would become operational by mid-2013. This, however, will be a brand new unit and will be owned by the company. The new engine plant will have an initial capacity of 1.5 lakh units per annum in the first phase, which will be doubled in the second phase by 2014.