>MARUTI SUZUKI: Volkswagen US $2.5bn Suzuki stake - Mutually beneficial (ANGEL BROKING)

Germany's Volkswagen (VW) has announced the purchase of a 19.9% stake in Suzuki Motors for US $2.5bn, giving it access to the Japanese firm's expertise in small cars and to its dominance in emerging markets like India, and inching VW closer towards its objective of becoming the world's top automaker. The closing of the transaction is subject to the approval of the relevant authorities and is expected in January 2010. Suzuki intends to invest up to one-half of the amount received from Volkswagen into shares of Volkswagen. Both companies will form a long-term strategic partnership from this deal, which will support their strategies in these challenging times.

In terms of a global presence and product diversity, the partnership marks an important step towards the future for both Volkswagen and Suzuki. The companies plan a joint approach to the growing worldwide demand for more environmentally-friendly vehicles.The combined sales volume of VW and Suzuki would surpass the volume of Toyota (the world's number one company in terms of vehicle sales).

What are the implications for Maruti Suzuki?
There is not going to be any immediate structural change in Maruti Suzuki's business model. However, in the long run, it can have access to better technological knowhow and can strengthen its position further in the global markets, where cost-effective and fuel-efficient cars are gaining acceptance. As indicated by its management, in the near-term, Maruti Suzuki may look at a deal like the one it has with Nissan. However, it is premature to comment on the possible future developments of the deal and its impact on Maruti Suzuki. On the face of it, the deal will benefit Maruti in the long run.

However, in the near-term, on account of the favourable relative trade-off, the stock could continue to gather momentum on any positive surprises on the Volume or Operating performance fronts. We maintain an Accumulate rating on the stock, with a Target Price of Rs1,882.

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