Mumbai:Tata Motors Ltd plans to set up a second factory in Bangladesh, one of its main export destinations for commercial vehicles, in six months to cater to growing sales of small and light commercial vehicles.
India’s largest auto maker by sales revenue is the junior partner in a 60:40 joint venture with Bangladesh’s Nitol Motors Ltd for nearly two decades.
Nita Co. Ltd, which has been the sole distributor of Tata Motors’ small, medium and heavy-duty trucks in Bangladesh since 1991, has an assembling unit for medium and heavy-duty trucks.
“Under the same joint venture agreement, what’s in the works is a new factory for which we are currently surveying the land,” said Abdul Matlub Ahmed, chairman of Nitol Niloy Group of Industries, on phone from Dhaka.
Ahmed added that the new factory will assemble small and light commercial vehicles that have so far been imported from India, allowing Nita to avoid levies and price them more competitively.
Currently 25,000 commercial vehicles are sold in Bangladesh in a year. Ahmed said the market is expected to grow three-fold in four years to 70,000 units and Nita will account for half the sales.
“With the increasing business in Bangladesh, Nita Co. Ltd is now in the process of evaluating the possibility of increasing the production capacity in Bangladesh, and also exploring the possibility of starting assembly of light and small commercial vehicles for Bangladesh,” a Tata Motors spokesperson said in an emailed response.
Both Tata Motors and Nitol Motors declined to specify the investment in the new factory.
Pankaj Chaddha, director, India, Ernst and Young, said any company transferring technology to a joint venture generates revenue both as royalty and from sales at the joint venture, besides providing strategic support to its partner.
The new factory will assemble models such as the Tata Magic, Ace and Iris. Ahmed said the site would be finalized in two-three weeks, after which Nita will seek an approval from the senior management of Tata Motors. He expects the unit to start production in six months. The facility will roll out 15,000 vehicles in the first year and reach 40,000 units in the next year. The second phase of the project would entail establishing a vendor base around the factory.
Ahmed met 27 Tata Motors suppliers in Pune last week. Officials from Tata Motors’ factory in Uttarakhand, where it makes the Ace range, have also started visiting Bangladesh, said a supplier familiar with the development, asking not to be named.
The new manufacturing base may also help Tata Motors make deeper inroads into Europe.
The European Union’s everything but arms arrangement provides duty- and quota-free access for a multitude of products from 49 least developed countries, including Bangladesh, according to the European Commission’s website.
The decision on exports from Bangladesh, however, will be Tata Motors’, said Ahmed.
Mahantesh Sabarad, senior vice-president, equity, at brokerage Fortune Equity Brokers Ltd, said Tata Motors is capable of independent presence in overseas markets, but it makes sense to emulate the Bangladesh model elsewhere if it can tie up with a local partner as strong as Nitol. “The joint venture has paid off,” he said.