New Delhi: India’s largest carmaker Maruti Suzuki India Ltd plans to acquire land at 5,000 sites across the country under a new subsidiary, which will then lease it out to build future dealerships, a top company executive said.
The company has hired three real estate executives with over 20 years of experience to identify these sites, chairman R.C. Bhargava said in an interview.
At an average surface area of roughly 5,000sq.ft, Maruti may buy as much as 25 million sq.ft, paying as much as ₹ 30,000 crore over 10 years, Bhargava said. The leased land will be used to build dealerships,workshops and ware houses.
“Once the identification of the sites is done and when it gets to acquisition and leasing levels, then we may hive it (the new vertical) off into a separate company...in two to three years," said Bhargava.
He said site locations can’t be identified without involving the marketing and sales people, which prevented the company to start land acquisition business as a new entity.
“Here, if they are part of the company and if they both report to the same managing director, then things will work better," he said.
Proceeds from the leasing business will reflect on Maruti Suzuki’s balance sheet.
Maruti’s move follows a proposal by Suzuki Motor Corp. chairman Osamu Suzuki that all dealerships be owned and operated by the company.
However, the proposal was resisted by top company management, including Bhargava and Kenichi Ayukawa, managing director and chief executive of Maruti Suzuki, which favoured the existing model as it encourages the entrepreneurial spirit.
“The new business model serves all the purposes of Mr. Suzuki without disturbing the current set-up," Bhargava said.
He added that the new venture will make Maruti’s partnership with its dealers more viable amid rising land costs across the country. The car maker has cash reserves of ₹ 13,000 crore as of 31 March 2015.
According to Mahantesh Sabarad, deputy head of equity research at Mumbai-based brokerage firm SBI Cap Securities Ltd, Maruti is getting into a unique experiment.
“So long as the company is able to cover its risk, which is the volatility in the commercial rent market, one should not view it as negative," said Sabarad.
Yet, Maruti may have to bear with some additional taxes, besides stamp duty and service taxes. In the current ecosystem, the cost of commercial property is very often absorbed by the dealer’s other businesses but with the proposed set-up, there will be a burden of taxes, both on Maruti as well as the dealers, Sabarad said.
According to him, Maruti may generate up to ₹ 4,000 crore in revenue per year if it plans to lease out 25 million sq.ft land at ₹ 50-150 per sq.ft.
Maruti Suzuki has established 1,700 dealer outlets and an equal number of workshops over a period of 33 years, which is estimated to be worth ₹ 11,000 crore.
“Now, I have to double this at least, if I have to double my sales. Otherwise, how will I sell? We have doubled the number of sales outlets in the last five years. As you go forward, as sales double, you will have to do that again," Bhargava added.
The company aims to sell two million vehicles in the Indian market by 2020. Its parent Suzuki is setting up a new manufacturing plant in Gujarat which will have an installed capacity to produce 1.5 million cars by 2025.
The Suzuki plant will have an exclusive manufacturing agreement with Maruti Suzuki, for which the Indian firm is seeking minority shareholders’ nod.
Maruti’s combined manufacturing capacity will reach three million units once the Gujarat plant is fully operational.
“The move will be crucial as we are looking at a turnover of ₹ 100,000 crore by selling three million cars in the country," said Bhargava, adding that the target to sell three million cars is inclusive of exports, which is 15% of its total production.