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Maruti Suzuki plans to shift factory from Gurgaon, eyes new expansion hub

Updated: Sep 13, 2018, 11.59 AM IST
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Maruti’s move to invest in new capacity in the next phase of expansion could be considered positive by shareholders as it will help in more productive use of free cash flow Maruti is generating.
MUMBAI: Maruti Suzuki wants to shift its Gurgaon factory to another location in Haryana as it finds the city just outside the National Capital to be too congested for a manufacturing facility.

A top Maruti executive confirmed the plan, but said it would take 4-5 years to have a new facility to become operational. The local unit of Japan’s Suzuki Motor said it has no comments to offer.

Maruti’s Gurgaon facility has a major role in India’s automotive history. Since it rolled out the Maruti 800 in 1983, the company has grown to become the top automaker in India, now manufacturing one in every two passenger vehicles sold. Its success has encouraged several other automakers to invest in India’s frugal manufacturing capabilities, making the country one of the top production bases and markets for passenger vehicles and components.

Maruti’s intention is to acquire a fresh plot not too far for the company's vendor belt and employee, people in the know said.

It has reportedly requested the Haryana government to directly allocate 1,200-1,400 acres in Sohna, about 25 km south of Gurgaon, at a fair price. The state, which has a policy of auctioning land and not allotting directly, has yet to take a call on the demand.

The plan suggests Maruti will be investing in the facility and not the parent, Suzuki, which has taken the responsibility to expand out of Gujarat. This will also help the local company expand capacity for its existing models, even as the Japanese parent uses its resources for the development of new generation of products including electric and hybrid vehicles.

The move will not only enable Maruti to develop modern and efficient plants, but also help unlock tremendous real estate value on the Gurgaon site once the project is completely executed.

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The plan is to house three-four assembly lines in the proposed facility, which will likely need an investment of Rs 10,000-15,000 crore.

Maruti manufactures 6-7 lakh units out of Gurgaon and has been using the facility to the hilt with demand outpacing supply over the past few years.

"There was a long pending request from residents to decongest the Gurgaon area. The movement of trucks was also an issue and the local administration is also very well aware of it," a person in the know of the company's plans said, requesting anonymity. “The company is asking for land which is not too far so that there is no major challenge faced by the vendors and working population.”

The process, if the company goes ahead with the plan, will happen in phases as it mothballs the existing facility and makes the new one operational, he said.

Maruti’s move to invest in new capacity in the next phase of expansion could be considered positive by shareholders as it will help in more productive use of free cash flow Maruti is generating.

According to analysts, Maruti will be generating free cash flow in the range of Rs 6,600-8,200 crore a year during FY18-21. In addition, it is sitting on cash and cash equivalent of Rs 34,000 crore. These two components will be enough to fund new capacity. Typically, setting up an assembly line to produce 250,000 vehicles a year requires investment of Rs 1,800-2,000 crore.

Shareholders initially had raised objections when Suzuki Motor proposed to become a contract manufacturer with its new facility in Gujarat for the Indian unit.
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