Suzuki opts for 2nd line in Gujarat plant

The first phase is expected to become operational in early 2017 and add annual capacity of 250,000 units to the existing 1.5 million unit capacity the company has from its factories in Gurgaon and Manesar in Haryana.

Maruti has a contract manufacturing agreement with Suzuki for the Gujarat factory, under which the Japanese major will sell products to Maruti on a no-profit-no-loss basis. This is the first time Suzuki is directly investing in a capacity in the Indian market. The initial proposal did not have the 'no profit, no loss' clause and attracted criticism. A revised arrangement was approved by shareholders last year.

Nikkei reports that Suzuki could invest $971 million (Rs 6,500 crore) for the second line, expected to become operational at the start of 2019. Suzuki will add assembly lines for engines and transmissions. In early 2015, Suzuki had announced investment of Rs 8,500 crore.

Maruti Suzuki, which commands 47 per cent of the domestic car market, aims to sell two million vehicles a year by 2020. In the first seven months of this financial year, it sold 828,883 units, up 8.7 per cent from the same period last year. Some of its best selling models face months of waiting, owing to a capacity constraint.

An analyst said the company might run out of capacity even after the Gujarat factory's first phase, given its double-digit growth rate. "The decision to bring the second phase quickly will help in protecting market share and ensuring growth," he said. Maruti Suzuki is operating its two plants at full capacity for the past few months.