Suzuki Motor started construction of a manufacturing plant in Gujarat that Chairman Osamu Suzuki called the start of a "new era" for the Japanese carmaker. Suzuki plans to supply vehicles made at the factory to local unit Maruti SuzukiBSE -0.40 %, a proposal that is staunchly opposed by some of the Indian company's minority shareholders.
Suzuki Motors Gujarat, a wholly owned subsidiary of Suzuki Motor, will own the plant where it plans to invest close to Rs 8,500 crore in several phases. The facility at Hansalpur on the outskirts of Ahmedabad is estimated to create a capacity of 7.5 lakh units a year, and is being projected to help Maruti attain its sales target of 2 million vehicles by fiscal 2020.
Speaking at an event on Wednesday where Gujarat Chief Minister Anandiben Patel laid the foundation stone for the plant, Osamu Suzuki said: "Under the 'Make in India' programme proposed by Prime Minister Narendra Modi, we will set up a state-of-the-art production plant here in Gujarat, with high focus on productivity and efficiency." Maruti is expected to source vehicles for exports from the proposed plant due to its proximity to two ports, at Mundra and Kandla. The auto maker now incurs Rs 6,000-7,000 to take a vehicle to port from its facilities in landlocked Haryana.
The first phase of the new plant will entail an investment of Rs 3,000 crore to make a 2.5-lakh-unit assembly line, which will begin operation in the middle of 2017. It will add two more lines to take the capacity to 7.5 lakh vehicles.
Eventually, Suzuki expects to produce as many as 1.5 million vehicles a year in the Gujarat region. Maruti has two tracts of around 600 acres each in the Hansalpur area. It plans to seek shareholders' approval to transfer the land where Suzuki is building the plant to the parent after Parliament clears amendments to the Land Acquisition Act.
Under current rule, such a proposal needs approval from at least 75% minority shareholders, but some of them including institutions are against the plan on concerns that it would hurt Maruti's profitability. The amendment proposes to reduce the consent requirement to 50%.
For Suzuki, India is one of the most important markets and Maruti is its largest unit. A decade back, Maruti contributed just 10% of the parent's turnover, but today, this has swelled to almost 30%. In terms of profit, the Indian subsidiary contributes about a quarter.
"Although we have been in India for three decades, but there has been no change in the way I tackle new challenges. So for me, setting up of the Gujarat facility is like beginning of a chapter ... we can even call it the second chapter of SMC in India," the Suzuki chairman said.
Suzuki is aiming at global volumes of 5 million by 2020. That would call for incremental volumes of 1.2 million globally and Maruti is key to reach that target. The Indian unit is estimated to account for 40% of Suzuki's revenue by 2020.
Maruti Chairman RC Bhargava said the Gujarat "facility is likely to offer a significant cost benefit of 10-15% due to the logistical cost advantage the location offers".