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Suzuki’s plant in India is ready amidst demand uncertainty

April 08
12:57 2020

The 18 percent fall in volumes last year and a crippled demand outlook for at least two quarters is casting a shadow on Maruti Suzuki’s parent company’s newest factory that is coming up in Gujarat.

Suzuki Motor Corporation, the parent company of Maruti Suzuki, India’s largest carmaker, has plans for the inauguration of Rs 3,800 crore Plant C in Gujarat in July, as per a shareholder disclosure in February.

Unlike the factories in Haryana that were set up by Maruti Suzuki, the plants in Gujarat are owned directly by Suzuki Motor Corporation (SMC). Production from Gujarat is handed over to Maruti Suzuki for sales. A fraction of the production, comprising the Baleno is provided to Toyota Kirloskar Motors, under a supply agreement.

Apart from regular fossil fuel-powered models, the Suzuki-Toyota partnership will also result in many electric and hybrid vehicles. Suzuki will develop electric vehicles for supply to Toyota and there will be a ‘mutual supply of hybrid vehicles’.

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Speaking to Moneycontrol, R C Bhargava, Chairman, Maruti Suzuki, said, “That plant (Plant C, Gujarat) will be ready. How much production will happen that will depend on the demand. It takes one-and-a-half years to erect the plant, that cannot be stopped and work will be completed.”

Plant C has the capacity to produce 250,000 units a year taking the total output from Gujarat to 750,000 units a year from the three plants. Along with the plants in Haryana (Manesar with a capacity of 800,000 and Gurgaon 700,000 units), SMC’s India-wide installed capacity will stand at 2.25 million units a year after Plant C comes on stream.

During FY20 a total of over 1.57 million units were produced by Maruti Suzuki and Suzuki Motor Corporation from all the plants. This represents a plant capacity utilisation of 78 percent, much lower than around 93 percent recorded in FY19. If the new plant starts production Suzuki will have excess capacity in India.

The coronavirus pandemic has taken a severe toll on vehicle production and sales in India. While production dropped by double digits in March compared to February, the drop in sales was more than 50 percent compared to March of last year.

Factors like Bharat Stage VI (BS6) price hike, expected tightening in lending by banks to the sector and weakness in economic activity, will stifle demand for at least the first half of the current financial year, say experts.

The disruption caused by COVID-19 has already forced two companies to realign launch plans. Groupe PSA brand Citroen has postponed its debut in India to Q1 of 2021 from September this year while Isuzu has pushed back the launch of BS6 models to Q2 2020-21 from Q1, as per official communication from both the companies.

Maruti Suzuki is believed to have closed FY20 with a share of more than 50 percent in the domestic market. Parent company SMC intends to maintain the market share of 50 percent at least till 2030 when the total size of India’s car market was earlier expected to grow to 10 million units from around 2.77 million units clocked in FY20.

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