New Delhi: Two months after Maruti Suzuki India Ltd said it would expand capacity, the country’s largest car maker is working on another increase, a top executive said.
“We plan to make an announcement (of a second expansion) before the end of this year,” said R.C. Bhargava, chairman, Maruti Suzuki. “Our standard line is 250,000 units and this requires an investment of Rs1,400-1,500 crore.”
The expansion would be at Maruti’s plant in Manesar, Haryana, and in addition to the Rs1,700 crore, 250,000-unit line at the same facility the firm had announced in March.
The car maker expects this line to be ready by March 2012, which would lift its production capacity at Manesar to 550,000 units a year from 300,000 now.
But even with that, analysts say Maruti Suzuki will struggle to meet demand. It has waiting lists of one-three months for its Swift, Swift DZire and Eeco models.
Maruti has an installed capacity of one million units a year at its Gurgaon and Manesar facilities in Haryana. It says it can produce 1.2 million cars a year as a result of “debottlenecking” certain operations on the factory shop floor.
“We’ve learnt our lesson and don’t want to be caught napping this time,” said Bhargava. It usually takes 18-24 months to set up a new line. He didn’t say when the second expansion would begin.
Once the increases are completed, Maruti would have to look for land outside Manesar for future growth.
Powered by new launches and improving consumer sentiment, rapidly rising car sales have resulted in auto makers scrambling to meet demand.
Car sales rose 40% in April to 143,976 units from a year ago.
“They (Maruti) did not anticipate the demand to be so strong,” said Surjit Arora, an analyst at Prabhudas Lilladher Pvt. Ltd, a brokerage in Mumbai. The car maker is facing severe competition from new entrants and cannot afford to have a waiting period for its models, he added.
Maruti, which has cash reserves of Rs6,000 crore, plans to fund the expansion through internal accruals. “All our expansion has been through our own resources, except the first 100,000 units,” Bhargava said.
Separately, executives at German car maker Volkswagen AG, which sells the Polo and Beetle models in India, plan to visit Maruti this week to explore possible areas of synergy between the two companies.
In December, Volkswagen had paid $2.5 billion (Rs11,425 crore today) for a 19.9% stake in Suzuki Motor Corp., Maruti’s Japanese parent.
Bhargava said Maruti had no plan to use Volkswagen’s facility at Chakan, Maharashtra to make its cars.
Rival Hyundai Motor India Ltd is also producing at a rate greater than its installed capacity of 600,000 units. In 2009-10, it made 600,639 cars at its plant in Irrungattukatoi near Chennai. This year, it plans to shift some production of the i20 model, freeing up an estimated 40,000 units.