Maruti hikes capex by Rs 30 bn

Maruti Udyog increased its capital expenditure by Rs 30 billion to Rs 90 billion to be completed by 2010.

The additional funds will be spent to enhance the car capacity at its new engine and transmission plant in Manesar from 1 lakh to 3 lakh units a year by FY 2008.

The company, in the next five years, is looking for five new models in addition to variants and upgrades along with doubling of production capacity within four years.

Since the Indian passenger car market is expected to grow at around 10% a year, given the strong consumption demand, the diesel engine for its Swift model will help Maruti compete with other diesel cars in the market.

With domestic market, the additional capacity being built for exports to Nissan and Suzuki would help Maruti scale up its operations and make tremendous strategic sense, given its expertise in making small cars.

However, it has been reported that this additional capex will lead to some pressure on cash flows, most of the capex will be financed through internal accruals, revenues from the additional investments should flow in sometime after FY 2008.