Hyundai looks to ramp up production

Hyundai looks to ramp up production

New Delhi: On the back of increased demand, Hyundai Motor India Ltd is considering ramping up its manufacturing capacity, two people familiar with the matter said on condition of anonymity.

The internal discussions, which are at a preliminary stage, would involve the company adding between 200,000 and 300,000 units by 2011-12 to serve both domestic and export markets.

Among the options being considered are an expansion at the company’s factory in Sriperumbudur in Tamil Nadu or setting up a new factory.

The auto maker, India’s second largest, last added capacity three years ago.

However, Rajiv Mitra, a spokesperson of the firm, said Hyundai India does not have any immediate plans to announce a capacity addition.

Hyundai, which has made India an export base for its i10 model, has been stretched by rising demand in both local and global markets. It has an installed capacity of manufacturing 600,000 units a year.

Incentives for small cars announced by European governments and rising Indian demand resulted in Hyundai producing 53,804 hatchbacks and sedans in September, at a capacity utilization rate of 107%.

Last month, it added a third shift, a step auto makers seldom undertake as that cuts down on the time required for shopfloor maintenance.

“Given Hyundai’s rates of utilization, this is about the time they would be looking at capacity addition," said Rakesh Batra, a partner at the automotive practice at consultancy firm Ernst and Young. Capacity expansion typically takes a couple of years to execute and operate.

Batra expects the market for cars and sports utility vehicles in India to grow at an average of 10% for the next five years.

To be sure, Hyundai may still decide to go slow on capacity addition.

Demand for small cars in Europe may tank as governments withdraw incentives for them. Hyundai has already indicated that it plans to shift production of its i20 model to Turkey from the second half of 2010.

This would free up capacity for the Indian market. At present, Hyundai exports one in every two cars it makes in India.

In September, market leader Maruti Suzuki India Ltd had decided to go slow on capacity addition. Maruti, which is also producing at the upper end of its one million cars per year limit, said it would shift some capacity from Gurgaon to its plant at Manesar, both in Haryana.

Hyundai India has been contacted by governments in Maharashtra, Gujarat, Rajasthan, Haryana and Uttarakhand, said one of the people quoted earlier.

The company is keen to expand operations in Tamil Nadu but may decide against it as poor infrastructure and labour issues have plagued operations in recent months, he added.