Maruti to spend Rs 15,000 cr to double sales infra in 5 years

India's largest carmaker Maruti Suzuki, which aims to increase its annual sales to about 2 million units by 2020, will invest Rs 15,000 crore over the next five years in procuring land for doubling its dealership network and expanding stockyard, warehouse and transportation infrastructure.

The company had sold 1.1 million vehicles in 2014-15. The volume increase in annual sales will be led by production at Maruti Suzuki's third plant in Gujarat, expected to become operational by early 2017.

"We have to double our network as the Gujarat plant output will lead to a gradual doubling of sales. The bulk of the investment required for additional sales will precede start of production at our Gujarat plant. The total money needed for creating additional sales-and-service infrastructure has been estimated to be Rs 30,000 crore. Of that, half the money will be invested by us, and the rest by dealers," Maruti Suzuki Chairman R C Bhargava told Business Standard.

The Delhi-headquartered company, promoted by Japanese automobile major Suzuki, has a dealership network of over 1,700 outlets at present.

Recently, it also set up a new network, Nexa, to sell premium cars. The company now plans to set up a network for selling its upcoming light commercial vehicle.

Bhargava explained that creation of the company's existing sales-and- service infrastructure had cost Rs 11,000 crore. Replicating an infra of the same scale today will require roughly Rs 30,000 crore, mainly because there has been an astronomical increase in land prices. "Earlier, we would not have invested more than 25-30 per cent of the required money. But going forward, we will put in roughly 50 per cent," he said.

The firm has about Rs 13,000 crore of cash reserves. The Rs 8,000-10,000-crore investment in the Gujarat plant is to come from parent Suzuki, with which Maruti will have a contract-manufacturing pact for this facility.

The increase in the company's investment share is mainly on account of the land bank that it will start creating from next year, to facilitate dealers setting up showrooms and service centres. The land parcels, to be procured by Maruti, will be leased to dealers, who will have to pay rent.

"The land cost today is making it difficult for dealers to invest. But if investments are not made, it will hurt us. We will buy sites where we want dealerships and workshops to come up in future," said Bhargava.

Most of the future dealerships will be set up on the land owned by the company. Maruti has set up a team, with executives hired from real estate firms, to oversee the land-procurement exercise.

Another strategic reason why the company is promoting dealerships on its own land is that Maruti wants to ensure dealers do not migrate to more rewarding businesses in future. Such a move by dealers will not be possible if they do not own the land. "The dealers might find more profitable opportunities later. We have to think of the future. This challenge never existed in the past. But going forward, dealers will have many options - from opening a McDonald's or Haldiram's outlet to setting up a mall," said Bhargava.