Maruti looks to create land bank for dealerships

Date : Oct 31, 2014

NEW DELHI: The country's largest car maker Maruti Suzuki has set its eyes on the real estate sector. Flush with over Rs 9,000 crore fund, the company is planning to create a huge real estate bank by buying land across towns and cities that it aims to develop and lease out for dealerships.

Ajay Seth, Maruti's chief financial officer, said the company has mega expansion plans to double its outlets over the next five years as it aims to increase annual sales to 2 million units against the 1.15 million vehicles sold in 2013-14. At present, Maruti has 1,300 sales outlets across the country — by far the biggest amongst all the car makers.

Seth said a big portion of this network expansion will be through Maruti's own land bank which will be spread across the country. "It will be in Tier 1, Tier 2 and Tier 3 cities. A white paper is being prepared on this initiative and actual work will begin soon." He added that "substantial" investments will be required for the real estate push and these are being firmed up now. "We are working on a comprehensive plan."

The trigger for the land purchase is increasing prices across the country, especially in high-potential belts, which impacted profitability of dealerships. Analysts say that automobile dealerships are no more a lucrative proposition with increasing land prices and competition. This is where Maruti plans to step in. By buying the land through its huge cash reserves, the company wants to give a relief to channel partners from the huge real estate cost to ensure that they give full focus on boosting sales and profitability.

Seth said investments in land will be recovered through lease rentals as well as the appreciation in the real estate prices.

Maruti Suzuki generates free cash reserves to the tune of Rs 5,000 crore on an annual basis, even as its capex is around Rs 4,000 crore. Seth said the company is working out ways to deploy the funds in various areas as investment in new Gujarat plant is expected to be made by parent Suzuki, once Maruti's shareholders approve the proposal.

Source And Courtsey By :- http://timesofindia.indiatimes.com/business/india-business/Maruti-looks-to-create-land-bank-for-dealerships/articleshow/44989441.cms