Why automobile vendors are flocking to Gujarat

Apart from around 40 Japanese companies and five global vendors of MG Motor India, many other biggies are eyeing Gujarat for either greenfield opportunities or brownfield expansion, says Sohini Das.

Illustration: Uttam Ghosh/Rediff.com.

Car component manufacturers are set to ride on the high demand for their products as vehicle production gains momentum in Gujarat, the youngest automotive hub in the country.

Apart from around 40 Japanese companies and five global vendors of MG Motor India (SAIC’s Indian subsidiary), big players like Subros, Lumax Industries, Toyoda Gosei Minda, Asahi India Glass, Wheels India Car Wheels and others are eyeing the state for either greenfield opportunities or brownfield expansion.

The combined investment potential in the sector is estimated to be over Rs 10,000 crore (Rs 100 billion) over the next decade, feels the state industries department.

Manoj Das, principal secretary of the industry and mines department, Gujarat, said, “In the last two months, the number of proposals coming in for projects in the auto-component sector has picked up very significantly.

"As the ecosystem here matures, there would be more interest from potential investors.”

He estimated that the automotive components sector in Gujarat is slated to see at least Rs 10,000 crore investment in the coming years.

Das confirmed that companies such as Lumax, Subros, Asahi Glass, and TG Minda are in touch with the state government for their respective projects.

Volumes game

During the financial year (FY) 2016-17, Gujarat roughly produced 1.1 million cars and two-wheelers (calculated from data sourced from the Society of Indian Automotive Manufacturers and companies). This is up significantly from 160,000 units produced in FY16, a sixfold rise.

While the share of Nano production (the Tata Motors model) came down from 22,262 units in FY16 to 8,302 units in FY17, production of Ford Figo, Figo Aspire as well as Tata Tiago grew significantly. The Tata Tigor was added to the camp.

Activa and Dio from the Honda stables also picked up pace.

During FY17 about 745,000 Activas were produced at Honda Motorcycle and Scooter India’s (HMSI) Vithalapur plant, which overall produced around 945,000 units annually.

In FY16, however, the plant had produced 55,985 units only as it commenced operations in February 2016.

The FY18 target for HMSI Vithalapur is 1.2 million vehicles. Suzuki Motor Gujarat’s (SMG) Hansalpur plant is on-stream now.

It targets to produce 150,000 units this FY. The Tatas, too, plan to achieve 100 per cent capacity at Sanand within FY18.

Project details

Lighting major Lumax Industries has already begun work on its 300,000-car sets plant in Sanand, which is coming up with an investment of Rs 120 crore (Rs 1.2 billion) and is expected to be operational by November this year.

A Lumax spokesperson said the facility would be operational at full capacity by 2019-20.

Lumax aims to supply to automotive major SMG’s plant that is already making the Baleno hatchback and is likely to commence production of the new Swift in Ahmedabad.

This plant would also service the requirements of the Tata Tigor sedan as well the HMSI plant in the vicinity.

The spokesperson confirmed that it would be supplying to HMSI for its existing models in Gujarat in the near future.

In fact, industry sources indicate that the entire production for HMSI would be moved to Lumax’s Sanand plant from its plants in Dharuhera and Bengaluru.

Supplier of automotive air-conditioning systems Subros, which already supplies for the Maurti Baleno and the Tata Nano from its Sanand plant, is now gearing for a new production line here to meet future demand from the OEMs.

This new assembly line is expected to be operational by 2019 and will take Subros total installed capacity at Sanand to 500,000 units annually (double of its current capacity).

In the company’s latest annual report, Subros Chairman Ramesh Suri has said, “The Indian automobile market is estimated to grow at 10-15 per cent.

"It has the potential to generate an additional 64 million jobs and contribute to over 12 per cent of the country’s GDP by 2021. Subros is geared up and ready take on a fresh onslaught of demand.

"Your company has expansion plans in Gujarat to take care of requirements of its customer Suzuki Motors Gujarat (SMG).”

Its annual report further noted that the company is working on feasibility of setting up additional facility in Gujarat to enhance its production capacity and as a de-risking strategy.

In May 2016, Subros’s Manesar facility was severely damaged in a fire incident, and the plant could not be re-opened till March 2017.

Meanwhile, another component major Toyoda Gosei Minda India is establishing a new plant here in Mandal (around 30 km from the SMG facility) for Rs 73 crore (Rs 730 million) or so.

The facility that will make safety systems (airbags, steering wheels etc) would start production in the second half of this FY.

Glass manufacturer Asahi India Glass (AIS), too, is setting up a Rs 500-crore (Rs 5 billion) greenfield plant near Mehsana (its fifth in the country), to primarily cater to the requirements of the SMG facility nearby.

The new plant would come up in two phases; the first phase capacity being 1.2 million tempered glass sets and one million laminated glasses per annum (pa).

"This greenfield project, with investments of up to Rs 500 crore, is being set up mainly to meet the requirements of Maruti Suzuki in Gujarat,” B M Labroo, chairman, AIS, has said in the company’s latest annual report.

Japanese Topy Industries, which recently picked up 26 per cent stake in Wheels India subsidiary Wheels India Car Wheels, is looking at setting up a greenfield plant near Gujarat under this partnership.

Reports suggest that the new facility would be coming up by 2018 with a capacity to make 1.5 million passenger car steel wheels.

This apart, five global vendors of Chinese car major SAIC too are following the auto giant to Gujarat where it is refurbishing the General Motors India’s Halol plant.

Yanfeng Automotive, Huichoung, Walling Industry, Ling Yun and Sevic are setting up plants in near Halol and the joint investment is expected to be over Rs 1,000 crore (Rs 10 billion).

Vinnie Mehta, director-general of Automotive Component Manufacturers Association of India (ACMA), felt that as the vehicle production ecosystem grows in Gujarat, the component industry is bound to follow.

“We had a meeting with the chief minister of the state last December and have been in touch with the industries department, and things are shaping up well. What one needs to wait and see is that with the good and services tax easing out logistical issues, will there be a need for component makers to be in the proximity of the OEM through multiple plants across the country, or they would opt for a central warehousing facility instead,” he said.