DJ: Maruti To Start Building West India Plant During April-June

By Santanu Choudhury

NEW DELHI--Maruti Suzuki India Ltd. plans to start building next quarter a 40-billion-rupee ($727 million) manufacturing plant that will allow the auto maker save on logistics costs for exporting vehicles.

A proposal to build the factory in the western state of Gujarat will likely be placed before the company's board next month, Chairman R.C. Bhargava told The Wall Street Journal.

"The project report is still under preparation," he said late Tuesday. "We are trying to bring it out in April at the board meeting."

The plant will be the third for India's largest car maker by sales and its first outside the northern state of Haryana where labor agitation affected production at a factory for most of last year.

The company locked out the plant at Manesar for about a month after a senior manager was killed and a part of the facility was damaged in labor unrest in July. The violence was the worst since Maruti began manufacturing cars in 1983.

Its other factory is at Gurgaon. Together, the two plants of Suzuki Motor Corp.'s (7269) largest unit can produce up to 1.5 million passenger vehicles each year.

Mr. Bhargava said the new plant is expected to start production in late 2015 or early 2016 with an initial capacity of 250,000 vehicles a year. Maruti has acquired 700 acres of land for the plant from the Gujarat government, he said.

Three assembly lines, each with a capacity to manufacture 250,000 vehicles a year, could be built at the proposed facility, he said.

The construction of the factory had led to speculation that the auto maker may gradually shift its manufacturing base from Haryana because of the labor problems there. Maruti executives, including Mr. Bhargava, say it isn't shifting production away from Haryana and that the new project has more to do with its plans to expand exports.

Haryana is a landlocked state and Maruti has to incur huge costs to transport vehicles to ports for exports from its existing factories. Gujarat has a coastline of 1,600 kilometers--the longest among Indian states.

Maruti exports cars to more than 125 countries in Europe, Asia, Latin America, Africa and Oceania mainly using a dedicated car terminal facility at the Mundra port in Gujarat. The company has exported 108,341 cars in the first 11 months of the current fiscal year that started on April 1. The proposed manufacturing facility near Mehsana town is about 300 kilometers away from the port at Mundra.

Gujarat is fast emerging as an auto hub with companies such as General Motors Co. and Tata Motors Ltd. setting up plants in the state. Ford Motor Co. and Hero MotoCorp Ltd., India's largest two-wheeler producer, are also in the process of establishing their factories in Gujarat.

Mr. Bhargava said the new plant in Gujarat would be used also to manufacture cars for the local market.

He said Maruti has recently purchased another 600 acres from private landowners near the plot given by the Gujarat government.

The company has purchased this land because of increasing property prices, but it would consider building another factory only after the first Gujarat plant reaches its full capacity, the chairman said.