There is always one risk associated with MNC companies operating in the Indian market either through listed subsidiaries or joint ventures. That they will form another 100% owned unlisted venture and divert profits to that subsidiary thereby robbing minority shareholders of the listed entity. The latest company to face the ire of the investing community is Maruti Suzuki and its plans of setting up of the Gujarat plant. As per Equity Masters, it was Maruti Suzuki which was to set up the Rs 40 bn plant in Gujarat. But on the day it declared its 3QFY14 results, the management came out with a completely different strategy with respect to how this plant was to be set up.

As per the new plan, the promoters of the company, Suzuki will form a 100% subsidiary in India solely with the aim of setting up the Gujarat manufacturing plant. This means that the funds required to set up the plant will be brought in by Suzuki into the subsidiary. Maruti Suzuki will source cars from this subsidiary to be sold not only in the Indian market but also for exports. The company has assured that the unlisted subsidiary will not make any profits and that Suzuki will benefit only though its stake in the listed entity i.e. Maruti Suzuki. But this so far does not seem to have soothed various investors who claim this to be an act against the interest of minority shareholders. Whether that is actually the case will depend a lot on the fact that the parent company sticks to its word and uses the subsid iary for the objectives that it has stated up front. Do you think Maruti Suzuki's shareholders are being taken for a ride?