Japanese automobile giant Suzuki Motor has granted its Indian subsidiary, Maruti Udyog, discounts on knocked-down components imported from Japan.

It has also waived royalty on its top-selling car models -- Maruti 800, Esteem and Zen -- in an effort to make its subsidiary more profitable and competitive.

The exercise was likely to benefit Maruti, which goes for an initial public offer in June, by over Rs 150 crore (Rs 1.5 billion) during 2003-04 and more than Rs 300 crore (Rs 3 billion) in the next two financial years, company sources said.

An agreement to this effect was signed between Maruti and Suzuki on March 5, as per the draft red herring prospectus filed by Maruti with the Securities and Exchange Board of India ahead of its public issue.

The agreement states that during 2003-04 and 2004-05, Suzuki will provide a 10 per cent discount on knocked-down components imported by Maruti, except for components imported for the Alto built for export.

Moreover, Suzuki will no longer charge royalty on the Maruti 800, Omni, Gypsy, Esteem and Zen. The royalty paid to Suzuki on these models stood at Rs 78 crore (Rs 780 million) in 2001-02.

During 2001-02 and April-December 2002, Maruti purchased components worth Rs 780.4 crore (Rs 7.8 billion) and Rs 585.1 crore (Rs 5.85 billion), respectively, from the Japanese parent.

Maruti said after 2004-05, the discounts would be determined subject to market conditions in India. On the Alto built for exports, discounts are already applicable from February 2003 till January 2004.

The waiver of royalty is subject to revision in the case of introduction of new technology, upgradation in specifications due to changes in market conditions, or requirements of new laws or norms.

As a strategy, Maruti introduces new models with a minimum of 75 per cent localisation, which is increased to 90 per cent within three years of introduction of the model. Some of the models are around two years old, but are being upgraded constantly.

Maruti has a strong vendor base in India and undertakes localised sourcing of dies, welding jigs and other equipment, introduction of flexible welding lines that can be used for the production of multiple models and in-house development of machine shop equipment.

The company said it was also planning to source dies for new models and upgraded versions of existing models from countries like Taiwan, which are less expensive sources than Japan.