In the run up to the proposed public offering, car major Maruti Udyog Ltd, which posted a healthy 40 per cent growth in profit last fiscal has cautioned that its group companies, some of which are loss making, "may adversely impact operations".
MUL, which will hit the market next month with a maiden offer, has expressed concern over low yielding investments in various group companies including car finance arm Maruti Countrywide Auto Financial Services, as part of the risk factors listed out in its draft prospectus filed with the Securities and Exchange Board of India.
The joint venture with G E Capital Services India in which the car leader holds 26 per cent stake, posted a loss of over Rs 4 crore (Rs 40 million) during 2001-02.
Maruti also cautioned investors over the adverse impact of the performance of its arms on the consolidated results of operations.
The government, which holds around 45 per cent stake in the car major would offload 25 per cent through a public offering.
The remaining stake would be divested through a second tranche slated for next year paving the way for its exit.
Last year, Suzuki acquired management control over the company following a Rs 400 crore (Rs 4 billion) rights issue which sold for Rs 1000 crore (Rs 10 billion) premium.
"Our strategic investments and capital commitments for the benefit of vendors may adversely affect our consolidated results of operations and financial condition," it said listing out the risk factors.
Another Maruti joint venture Mark Auto Industries where the car maker holds 33 per cent stake, ended the previous year with a marginal profit of Rs 0.3 crore (Rs 3 million) after posting a loss of Rs 2.5 crore (Rs 25 million) the previous year.
Mark Auto is engaged in manufacturing automotive assemblies and components.
In the case of J J Impex, a joint venture with Sumitomo Corporation, where Maruti owns 49 per cent stake, the company registered a meagre profit of Rs 0.5 crore (Rs 5 million) in 2001-02.
Impex is involved in repair and services, and sale of spare parts and accessories. Maruti has made strategic investments in 13 vendors who supply critical raw material and components to the company.
In the draft prospectus, the company said some of the vendors had yielded low or negative returns on investments or generated losses during the last three years.
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