Suzuki steps on the gas with ₹9,000 crore Gujarat investment

Suzuki Motor Corp. plans to invest at least ₹ 9,000 crore to build a new car plant in Gujarat, three people with knowledge of the matter said. The investment will double Suzuki’s annual capacity in Gujarat to 1.5 million vehicles, underscoring the Japanese auto maker’s ambitious plans for India where its unit, Maruti Suzuki India Ltd, is the market leader.

The infusion of fresh funds would boost Suzuki’s combined investment in India to as much as ₹ 30,000 crore. Suzuki will use the funds to build three assembly lines with a total annual capacity of 750,000 vehicles, an engine manufacturing unit, buy land, build a full-fledged research and development (R&D) centre in Rohtak (Haryana) and set up a lithium-ion battery unit in Gujarat in alliance with Denso Corp. and Toshiba Corp.

Suzuki’s sharpening focus on its biggest bastion, India, follows the auto maker’s decision to pull out of big markets such as the US.

Nikkei Business on 23 August reported that Suzuki is also in the process of pulling out of China, which would mean the company won’t be present in the world’s top two automobile markets.

In addition to the Gujarat plant, factories owned by Maruti Suzuki in Haryana currently produce about 1.5 million units annually. The new expansion would therefore take Suzuki’s total production capacity in the country to 3 million units.

To be sure, Suzuki’s investment does not include those made by Maruti Suzuki, which spends about ₹ 5,000 crore each year on capital expenditure and on purchasing land parcels across the country.

The investments towards building the new factory will be made in Ahmedabad district, close to Suzuki’s existing factory in Hansalpur-Vithalpur area, said two Gujarat government officials.

“The company has recently purchased some private land where it plans further expansion. The overall capacity of Suzuki in Gujarat will reach 1.5 million vehicles once these two projects are complete,” said one of the two state government officials, requesting anonymity.

A Suzuki executive, who did not wish to be named, said the company will invest ₹ 9,000 crore in the state to expand capacity. A spokesperson for Maruti Suzuki did not respond to an email seeking comment.

Suzuki routes its investments in Gujarat through its unit, Suzuki Motor Gujarat (SMG), which has a contract manufacturing agreement with Maruti Suzuki, wherein it supplies cars to the latter at cost price.

The pact is valid until 2030.

The state government officials said the company will add another 250,000 units of capacity to its existing factory in Gujarat over the next few months before expanding it to 750,000 by 2020.

Post 2020, the company will roll out vehicles from the new facility, they said.

Suzuki controls 51% of India’s car market through Maruti Suzuki, which means it sells every second car in the country.

Net profit at Maruti Suzuki has doubled in the last three years and it clocks about ₹ 2,000 crore in net profit on a quarterly basis. The unit now contributes more than half of Suzuki’s consolidated profit from about 30% six years ago. Suzuki’s expansion will create more jobs in Gujarat, the home state of Prime Minister Narendra Modi.

“Gujarat is set to be the biggest hub for Suzuki, both in terms of investments and capacity,” the second state government official said. “The company is giving direct employment to at least 4,000 people in the state. It will create overall direct and indirect employment for about 25,000-30,000 people in future.”

The Sanand-Hansalpur belt has emerged as an auto and industrial hub in the past decade after Tata Motors Ltd shifted its factory to the area in 2008 following violent protests in West Bengal’s Singur. The area is expected to generate employment for 100,000 people in the next few years, said the same official.

The belt falls under the Delhi-Mumbai Industrial Corridor project, a joint venture between the Indian and Japanese governments. A Japanese industrial park and a township for Japanese employees are also planned in Gujarat by the government.

Maruti Suzuki has set up a skill development initiative called Japan India Institute for Manufacturing in Gujarat.

source: livemint


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