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Toyota cuts investment in second plant by 25%

Toyota cuts investment in second plant by 25%
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First Published: Sun, Oct 11 2009. 10 25 PM IST

Trimming expenses: Toyota Kirloskar’s factory at Bidadi on the outskirts of Bangalore. The firm says it will stick to the December 2010 deadline of constructing its second unit and launch its small ca
Trimming expenses: Toyota Kirloskar’s factory at Bidadi on the outskirts of Bangalore. The firm says it will stick to the December 2010 deadline of constructing its second unit and launch its small ca
Updated: Sun, Oct 11 2009. 10 25 PM IST
Bangalore: The local arm of the world’s largest car maker, Toyota Kirloskar Motor Pvt. Ltd has reduced by one-fourth its proposed investment in a second plant in India for its small-car debut in the country.
The savings are from lower construction costs, local sourcing of equipment and a favourable currency exchange rate, a top executive said.
Toyota Kirloskar is also in talks with banks for raising Rs900 crore—its first fund-raising in the country.
The lower investments and savings are crucial for Japan’s Toyota Motor Corp., which reported its first loss in seven decades in 2008-09 and has put on hold several projects.
Trimming expenses: Toyota Kirloskar’s factory at Bidadi on the outskirts of Bangalore. The firm says it will stick to the December 2010 deadline of constructing its second unit and launch its small car in early 2011. Hemant Mishra/Mint
Shekar Viswanathan, deputy managing director (commercial) at Toyota Kirloskar, said the company will invest Rs2,400 crore in the second plant, near its existing factory at Bidadi on the outskirts of Bangalore, and not Rs3,200 crore as announced in November.
The lower investment will not affect the planned capacity for 100,000 cars a year in the second plant, he added.
Toyota Kirloskar will also stick to its deadline of constructing the factory by December 2010 and launching the small car in early 2011.
The total investment in the second plant, however, may increase by Rs300-500 crore depending on future exchange rate movement and cost overruns on software and other aspects, he said.
The rupee has strengthened 2.9% against the yen so far this year, making imports from Japan cheaper.
Cost-saving measures are routine in all capital intensive projects but “more people are asking questions now”, said Viswanathan.
Toyota Motor has forecast a net loss of $5 billion (Rs23,250 crore) in the year ending March after it posted a loss of $4.4 billion in 2008-09, its first in 71 years. The firm is also witnessing sliding sales in the US, Europe and Japan as consumers buy fewer cars in a recessionary environment.
India is a different story.
Toyota Kirloskar, which entered India in 2000 through a joint venture with the Kirloskar Group, has raised its sales targets for 2009 following the runaway success of its newly launched sport utility vehicle (SUV), Fortuner.
At the beginning of the year, the company had set a near-flat target to sell 52,000 cars. “Now the way things are going, we are looking at over 53,000,” said Sandeep Singh, deputy managing director (marketing), Toyota Kirloskar.
The Fortuner, launched in end-August, attracted 7,000 bookings, surpassing an anticipated 5,000, forcing Toyota to raise production to 600 units a month from 500.
In September, Toyota Kirloskar hit monthly record sales of 6,180 vehicles. Innova, its multi-purpose van, is the company’s highest selling vehicle, followed by the Corolla Altis sedan. It also imports completely built units of the Prado SUV and the flagship Camry sedan.
“Most of the global majors are now seeing India seriously,” says Ramnath S., director (research) at brokerage IDFC-SSKI Securities Ltd.
He added that Toyota, which has a mere 3% market share in India trailing Maruti Suzuki India Ltd, Hyundai Motors India Ltd and General Motors India Pvt. Ltd, could see a significant growth in market share if it gets its small car right. Nearly three-fourths of the cars sold in India are small cars.
As for Toyota Kirloskar’s fund-raising, the firm is in discussions with a clutch of banks including State Bank of India, ICICI Bank Ltd, HDFC Bank Ltd and Hong Kong and Shanghai Banking Corp. Ltd to raise Rs900 crore between April and December 2010.
The remaining amount will be funded from internal accruals, which currently stand at Rs1,600 crore. “We will go for a bank borrowing, buyer’s credit or a deferred payment guarantee,” Viswanathan said.
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First Published: Sun, Oct 11 2009. 10 25 PM IST
More Topics: Toyota | Auto | Investment | Kirloskar | Fortuner |