Source: The Economic Times, Apr 17, 2017
HYDERABAD | MUMBAI: South Korea’s Kia Motors may put in as much as Rs 10,000 crore in one of the biggest foreign direct investment projects in India, with the Hyundai Motor unit selecting Andhra Pradesh for its maiden facility after a two-year, four-state search in Asia’s third-largest car market.
Two persons aware of the development told ET that Kia, a unit of South Korea’s biggest carmaker, has chosen Penukonda in Anantapur district in southern Andhra Pradesh, which is starting the process of buying land for the factory. Kia’s choice of Andhra Pradesh — amid intensifying interstate rivalry to draw investments as part of the Make-in-India initiative — helps reinforce N Chandrababu Naidu’s credentials as a business-friendly chief minister.
“The car manufacturing facility, a first for Andhra Pradesh, will involve two phases with a cumulative investment of $1.6 billion, or Rs 10,300 crore, with first phase of investment amounting to about Rs 6,000 crore,” said one of the persons mentioned above. “The first phase of the production facility will have an installed capacity to produce 3 lakh units a year.” In February 2016, ET was first to break the news of Kia’s plans to set up a plant in India. Its parent company, Hyundai, has been in the country since the late 1990s.
Kia’s decision on the plant comes amid India’s growing stature as a manufacturing hub, with several overseas companies responding to the federal government’s Make-in-India initiative.
After the make-in-India initiative was launched in September 2014, FDI equity inflow increased 46 per cent to $61.58 billion between October 2014 and May 2016, the government had said last year.
The Industries and Commerce department of Andhra Pradesh has on April 13 issued government orders for acquisition of nearly 600 acres of land by paying Rs 10.5 lakh an acre “as a special case.”
The government has accorded permission to the Anantapur district collector to procure land required for the project under the AP Land Acquisition rules 2014. In the first phase, the plant is likely to have a capacity of 3 lakh units per annum, and the first car is likely to be rolled out by 2019. The Andhra Pradesh State Investment Promotion Board (SIPB) is currently on the verge of finalising the agreement with best possible incentives to the Korean firm, said the same person, adding that “a formal agreement between AP and Kia Motors is expected shortly.”
For its part, Kia declined to comment on the report. “As we have not yet made any official confirmation on possible future plans to invest in India, I am afraid that we have no official comment at this time,” said Michael Choo, General Manager, overseas communication planning team at Kia. Anantapur, in southern Andhra Pradesh, is close to the automobile ecosystem of Tamil Nadu and near Hyundai’s India manufacturing facility at Sriperumbudur, on the outskirts of Chennai.
The site is and also close to Bangalore, Karnataka’s automotive belt. “The Andhra government is very keen to bring in the first large global car manufacturer to the state, which should enable it to also attract auto ancillary and component manufacturers, and help the southern Andhra region to emerge as an automobile hub,” said another person aware of the development.
“While Isuzu Motors already has a major production facility currently under operation in the Sri City special economic zone in Chittoor district, two-wheeler maker Hero Moto-Corp is in the process of setting up its facility close by, involving Rs 800 crore of investment.”
Kia has already engaged with several vendors in India through Hyundai Motor India’s sourcing arm Mobis. An executive supplying to Hyundai Motor India said: “We have already been intimated about understanding the logistics cost to Anantapur and accordingly quote the pricing in the future. They are yet to float the RFQ, but they are likely to have a portfolio of cars, including a small car, a sedan, and an SUV,” said the executive, requesting anonymity.
Another Hyundai vendor that may also supply to Kia said the company has started discussing a project in South Korea codenamed SP2, which is likely to make an SUV in the same segment as Hyundai Creta and may be based on the same architecture.
The vehicle may hit the market in 2019. Since the Kia factory will be located close to Hyundai’s factory, Kia is considering utilising Hyundai Motor India’s paint shop and body shop and a lot of aggregates to keep costs under check, and bring in the economies of scale.
Hyundai Motor India, which is utilising about 90 per cent of its capacity, may look at harnessing the Kia facility to ensure quicker return on investments, said an executive aware of the Kia Motors plans.