New products at Maruti may mean lower royalty for parent Suzuki

Country's largest car maker Maruti Suzuki India expects royalty paid to parent Suzuki Motor Corp to come down starting with its upcoming compact SUV as its engineers enhance their role in the joint development of future products.

The company, which is investing Rs 2,000 crore (Rs 20 billion) on a research and development facility, including a test track, at Rohtak in Haryana, will enter the SUV and MUV (multi-utility vehicle) segment "with full bandwidth" in the next few months.

"In any situation where we have joint development for any product by using the engineers, who work on development of the products in India and Japan, there will be an equal apportionment based on the efforts and technology leveraged by either side on calculating royalty," Maruti Suzuki India (MSI) Chief Financial Officer Ajay Seth told analysts.

He said the core technology such as powertrain and basic platform would continue to flow out of Japan but royalty paid by MSI to Suzuki Motor Corp (SMC) would be reduced accordingly "if there is any design or any other work that we do here".

"You will see this happening with the first launch of our compact SUV, as and when it comes, because that is the first case of joint development and therefore when that comes in you will see that rate of royalty will be lower then the normal rate of quality based on the efforts which are being jointly put," Seth said.

Asked if more and more products would enjoy lower royalty in future, he said: "As we mature and as we do more joint developments, it will happen."

In the first quarter ended June 30, 2014 MSI had paid royalty of Rs 689 crore, which was 6.2 per cent of net sales. While Seth did not share the timeline for the launch of the compact SUV, he said: "In terms of vehicle models, yes, the next few months we have powerful lineup, we are entering the SUV and MUV segment with full bandwidth." MSI had showcased concept compact SUV XA Alpha at the Auto Expo held here in 2012.

The long awaited product is likely to be launched early next year.

The company has invested most of the Rs 2,000 crore (Rs 20 billion) earmarked for developing R&D centre at Rohtak and has partly started operations there. All the facilities at the centre, including the test track, are expected to be fully operational by November this year.