Maruti Suzuki, India’s largest carmaker, has increased its capital expenditure (capex) outlay for FY22 to Rs 6,700 crore and plans to set up a new manufacturing plant, a top company official said.
This will be the first time Maruti Suzuki invests in fresh capacity creation in over 15 years. The last time the company set up a new plant was in 2007, in Manesar, Haryana.
The comparatively newer Gujarat plant, which manufactures the Swift, Baleno, and Dzire, is owned by a subsidiary of Maruti’s parent, Suzuki Motor Company, called Suzuki Motor Gujarat (SMG).
The Rs 2,200 crore investment plan is part of the company’s 10-year, Rs 17,000-18,000 crore investment plan, which envisages capacity creation of 1 million units per annum. This new plant will come up in Haryana, which has been home to Maruti Suzuki since its birth in 1983.
The company did not indicate if the new plant would only produce models powered by internal combustion engines (petrol, diesel and CNG) or if it would also handle production of electric vehicles (EV). On October 27, Maruti Suzuki Chairman RC Bhargava had said that the company had no immediate plans to launch EVs.
Revving up expansion
The company’s Gurgaon plant, spread over 300 acres, is also its oldest and the premises need to be decongested. Maruti wanted this to be done quickly but due to the Haryana government’s job reservation policy and the pandemic, its plans were in the slow lane.
The Haryana State Employment of Local Candidates Act, 2020, was passed by the Haryana government to provide for 75 percent employment of local candidates by employers (including private employers).
The Confederation of Indian Industry (CII) had expressed reservations against this Act and had cautioned the Manohar Lal Khattar-led government about the adverse impact of the move on future investments in the State.
“We had plans to have a capex of Rs 4,500 crore. We have put in an additional amount of Rs 2,200 crore for FY22, which could be for any other expansion we are contemplating. There could possibly be a total capex of Rs 6,700 crore. Only Rs 1,500 crore has been spent in the first half,” said Ajay Seth, Chief Financial Officer of Maruti Suzuki.
The Gurgaon plant’s current peak capacity is 700,000 units a year. Combined with the Manesar plant, which has a production capacity of 800,000 units, Maruti Suzuki’s total production capacity stands at 1.5-1.55 million units a year. The SMG-owned Gujarat plant has a manufacturing capacity of 750,000 units a year.
Bullish on long-term growth
While the Covid-19 pandemic certainly caused some of the biggest disruptions ever seen in the automotive world, automakers are appearing bullish about the long-term demand prospects in India, which still has one of the lowest levels of car ownership per 1,000 people at 22.
Before the pandemic, Suzuki Motor Corporation aimed to clock annual sales of 5 million units from Maruti Suzuki (including exports) by 2030, requiring it to more than double production capacity.
This target was in tune with maintaining its 45-50 percent market share in India, and in anticipation that the passenger vehicle market would grow to 10 million units by 2030, from 2.7 million units in FY21.
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