The board of Maruti Suzuki India Ltd on Monday decided to build its first own diesel engine plant in Gurgaon, India.
The work at the new facility is expected to begin after the 2012 budget, as the management needs to know the government’s stand on diesel vehicles taxation policy and possible diesel price deregulation.
The Indian automaker said that the new facility will help in meeting the sudden increased demand for diesel cars and reduce its dependency on Suzuki Powertrain for diesel engines.
An analyst with a leading brokerage firm said that it is surprising the company is opting for Gurgaon as the location of the plant.
“Gujarat would have made more sense as they could have utilized the incentives to their advantage and made engines at a cheaper cost,” said the analyst, who didn’t want to be named.
“One reason which appears is that Suzuki Powertrain’s balance sheet could have been weaker. Their ability to raise funds could be a constraint and Suzuki’s investment in yen as equity could be costlier. So, Maruti is making investment from its own balance sheet.”
In other news, the top Indian automaker reached an agreement with Fiat SpA’s Indian unit for the annual supply of 100,000 diesel engines, which will help Maruti pare the waiting list on models such as the Swift hatchback.
Maruti’s total vehicle sales also fell 27.6% y-o-y in the third quarter. Its market share in the domestic four-wheeler passenger vehicle segment was estimated at 35% in the December quarter versus 48.3% a year earlier, according to analysts tracking the sector.