Hyundai to set up diesel plant in India

New Delhi: In a piquant situation, Korean car maker Hyundai is starting from the scratch on plans to set up a diesel engine manufacturing plant in India with a fresh feasibility study, reversing an earlier Rs 400 crore proposal.

The company’s wholly-owned arm, Hyundai Motor India Ltd (HMIL) had in 2010 announced to invest Rs 400 crore on a diesel engine plant under its then head Han Woo Park. It was, however, put on hold last year following slump in the market.

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According to industry sources, HMIL has decided to revisit the entire project with a fresh feasibility study following a change in guard at the top management in March this year.

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Park was replaced as Managing Director by Bo Shin Seo and returned to Korea as Chief Financial Officer of Kia Motors, an arm of the company’s parent firm Hyundai Motor Co.

When contacted, a company spokesperson said: “Our feasibility study is going on. After that, we will decide whether we will go ahead with the plant or not.”

It was expected that HMIL will go ahead with the plant in India after Budget spared the auto industry from ‘diesel tax’ and with the price of petrol much higher than that of diesel, the demand for diesel vehicles has jumped.

A source in the know of the development described the latest development regarding the company’s diesel plant as “a strange move”.

“The plant was earlier announced in 2010 after completing all the due processes and with all the necessary precautions. However, with the new MD and some new senior officials coming in, the company has started again the feasibility study,” a source said.

In November last year, HMIL had put on hold its plan to set up a diesel engine manufacturing unit at an investment of Rs 400 crore due to the slowdown in the automotive market.

HMIL at that time had said it would hold the construction of the proposed plant at least for the “medium term”.

The plant, which was announced by Park in December 2010, was envisaged to have an annual capacity of 1.5 lakh units for three types of engines – 1.1 litre, 1.4 litre and 1.6 litre for the domestic market.

After the Budget in March this year, the company had said it would review setting up of the plant.

“We have to weigh the pros and cons as there has been no mention of diesel tax in the Budget. Within two weeks we will be taking a decision on whether we should go ahead with our diesel plant or not,” a spokesperson for HMIL had said.

At present, the company imports diesel engines from Korea for its models such as ‘i20’ and ‘Verna’. HMIL has an installed capacity to produce 6.7 lakh vehicles per annum.

In April this year, HMIL had said it ramped up production capacity of diesel variants of its sedan Verna and compact car i20 by up to 50 percent. “The supply of both the diesel cars taken together will go up almost 50 percent from the existing 7,000 units per month to 10,500 units per month,” it had said.

The company increased sourcing of diesel engines from South Korea following increased demand of such cars in India due to rising price differential between petrol and diesel.

Demand for diesel cars has been rising in India. HMIL’s domestic sales went up 2.85 per cent at 32,010 units compared to 31,123 units in the year-ago period.

In 2011, HMIL’s domestic sales increased to 3,73,709 units, registering a growth of 4.76 per cent from 3,56,717 units in the previous year.

PTI