Maruti to start Gujarat unit early, invest Rs4,400-cr in marketing and R&D

Maruti Suzuki India Ltd (MSIL) will commence commercial operations at its new facility in Gujarat by January next, four months ahead of schedule.

The company will also strengthen research and development activities and build marketing and sales infrastructure with investments of around invest Rs4,400 crore.

MSIL's Gujarat unit was to start production from May-June 2017. But an acute shortage in production and inventories has forced the car market leader to boost production. The company is also simultaneously working to strengthen research and development (R&D) and building marketing and sales infrastructure.

''We will need roughly 10,000 units in the beginning of the year, and to do that we have to start the production sometime in January,'' chairman RC Bhargava told reporters in New Delhi.

Bhargava said MSIL will spend around Rs4,400 crore in FY17, mainly for strengthening research and development (R&D), and building marketing and sales infrastructure.

The company's team for land acquisition is in place and already Rs800 crore has been invested for expansion of its sales network. MSIL had spent Rs2,500 crore on capex last year.

''Our current capacity is around 1.43 million units from the two plants. Our engineers are working to enhance it. We can stretch it up to 1.57 million units but will be mostly in Mansesar since we cannot increase production at the Gurgaon plant much as movement of heavy trucks create inconvenience to the people staying around the plant,'' Bhargava said.

He said the company would start on a single-shift basis and, and is currently working to stretch production at its two existing facilities.

Bhargava, meanwhile, said the ban on diesel vehicles and the implementation of the odd-even formula is likely to impact sales of passenger vehicles.

The Delhi government has banned the sale of diesel vehicles with engine capacity of above two litres, and introduced an odd-even formula, to curb pollution.

Bhargavva also supported demand made by some members of Parliament that they be exempted from Delhi's car rationing scheme. ''Some MPs have demanded removal of odd-even because it creates a problem in their going about their business. That's quite valid, I think. My business may be of less national importance, but I too have to make a living and support my family,'' Bhargava said.

He also cited a report by the Indian Institute of Technology (Delhi), which said that cars contribute only 2 per cent of Delhi's overall pollution. Construction dust, fly ash, Delhi's proximity to the desert, and industrial smokes result in maximum pollution, he pointed out.

Sees double-digit growth in FY17
Maruti Suzuki expects double-digit growth in sales in the year started April, Bhargava said.

Maruti Suzuki on Tuesday reported an 11.73 per cent fall in its net profit – the steepest in two years - for the January-March quarter, due to higher tax outgo and production loss from unrest near its factory.

Net profit for the quarter ended 31 March 2016 fell to Rs1,133.60 crore, compared to Rs1,284.20 crore a year ago.

Net sales of the company, however, rose 12.48 per cent to Rs14,929.50 crore from Rs13,272.50 crore a year ago.

Maruti Suzuki paid tax at a higher rate of 33 per cent owing to fewer benefits on research and development (R&D), smaller tax-free income and lower capital expenditure compared to the year-ago period.

This is a one-time phenomenon and will get reversed the next year, the company said, adding that the higher capital expenditure of Rs4,400 crore for fiscal 2016-17 will bring down the effective tax rate to 25-26 per cent.