Maruti Suzuki has started the process of setting up its biggest manufacturing plant, but warned that future investment will depend on the state of auto sales in India, which have been declining for the past four years.
Maruti began looking for a site to set up a new factory in 2018 after the automaker’s Gurugram plant, its oldest manufacturing unit, had to cut production due to traffic congestion.
The company will invest over Rs 11,000 crore to set up the first unit spread over 800 acres at IMT Kharkhoda in Sonepat, Haryana. Maruti, which sells an average of every second car on Indian roads, completed the land allocation process with the Haryana State Industrial and Infrastructure Development Corporation Limited (HSIIDC) on Friday.
The company currently produces its cars at the Gurugram and Manesar facilities with a capacity of 880,000 and 700,000 units, respectively. Additionally, it sources vehicles from the Suzuki Motor Corporation (SMC) parent plant in Gujarat, which has a capacity of 500,000 units per year.
In total, the monthly production of the three factories is estimated at just over 173,000 units. The company has cut production at its Gurugram unit from 700,000 to 500,000 units over the past two years due to traffic congestion, hampering truck and trailer traffic.
Maruti Suzuki’s closest rival, Hyundai Motor India has an installed capacity of 750,000 units at its two plants in Sriperumbudur, Tamil Nadu.
Gurugram’s move to Kharkoda will not happen all at once but will reduce its capacity in phases, and will depend on the pace of new capacity coming to the new plant.
Rahul Bharti, Executive Director (General Affairs) of Maruti Suzuki said while other states also approached the company to set up the factory, it chose Haryana because of the close ecosystem of vendors and suppliers. .
All capital investment for the new plant will be through internal Maruti Suzuki accruals for which the company will plan its capital expenditure over the next three years. The company announced a capex of Rs 5,000 crore for FY23.
The process of setting up the first assembly unit will be completed by 2025 and will have a deployment capacity of 250,000 vehicles per year. There is room to add four assembly units to the 800-acre site, meaning the company can expand capacity to up to 1 million units per year.
Chairman RC Bharagava told Business Standard that the company will simultaneously start working on setting up the second assembly unit in Kharkoda so that capacity can increase faster.
“The current investment takes into account the cost of the land, the installation of ancillary equipment and others. Normally, the process of setting up an assembly unit can take up to two years. Since we will start working on setting up the second unit simultaneously, it will take us about one to one and a half years to start the second plant. Further capacity improvements will depend on market conditions,” Bhargava said.
The car market is now clearly divided between Bharat and India, Bhargava pointed out. “If the Bharat market slows down, the growth of the Indian market will not be able to compensate for it,” he said.