Sindhu Bhattacharya

New Delhi: Maruti Suzuki India is on an overdrive.

Anticipating a surge in exports and perhaps also to meet competition coming in the form of Tata Nano’s production numbers, Maruti has decided to complete the one million unit capacity expansion planned for the next fiscal by October this year.

In fact, by 2010 Maruti’s total production capacity will jump to 1.2 million units, of which at least 2 lakh will be fed to the export markets.

While acknowledging that the company has become aggressive on capacity expansion, a Maruti spokesperson said this was being done to meet enhanced export demand and involved no fresh investment from the Japanese parent.

Suzuki Motor Corp has already announced Rs 9,000 crore for capacity expansion and research & development till 2010.

The company is already committed to producing about 2 lakh units of the new car “A Star” by the turn of the decade besides a specified number of units of the “Splash”. Of this, at least 1.5 lakh units of A Star are to be exported under Suzuki and Nissan badges by 2010 so that the overall export target that year and beyond could be well over two lakh units.

Not just exports, experts said the impending launch of the Nano could also be a factor in Maruti’s capacity expansion push.

If projections on Nano numbers by some global think-tanks are correct, Tata Motors may leave Maruti behind in production capacity and hence also market share over the next 4-5 years.

Meanwhile, in their comments on Maruti on Friday, Jamshed Dadabhoy and Hitesh Goel of Citigroup Global Markets Research noted that capital expenditure ahead of schedule was a positive development.

“Given that there was an element of concern that Maruti would experience a capacity shortfall into mid-2008 and consequently lose market share as production would be insufficient to meet domestic demand. From a financial perspective (however) it is a marginal negative, as our earnings forecasts (FY09/10E) will have to be revised to incorporate new depreciation assumptions.”

By October this year, the Manesar plant will be capable of producing three lakh units against the current 1.4 lakh while the Gurgaon plant’s capacity at peak utilisation would be around seven lakh units. Dadabhoy and Goel has estimated continued good run for Maruti, pegging compounded annual sales growth at 17% for the next two years even though margins would remain under pressure “due to higher input costs and a shift in product mix toward exports, whose margins are low”.

Source : DNA