US car maker Ford India is set to sign a Memorandum of Understanding (MoU) this week with both the Gujarat government and Tata Motors to sell its Sanand plant.
The MoU may be signed on Monday itself, the Times of India reported on Sunday.
With the critical issue of tax incentives and job retention out of the way, the definitive agreement is likely to be inked within 4-8 weeks and Tata Motors may pay about $100-150 million for the plant, say people in the know.
The acquisition will help Tata Motors create more capacity to cater to the fast-growing demand for the brand.
The Gujarat government has supported this deal and is willing to extend tax benefits, meant for Ford, to Tata Motors for manufacturing of cars.
Ford India had entered into a proposed JV with Mahindra & Mahindra for $250 million which included transfer of both the plants.
Tata Motors is likely to pay between $100 and $150 million for the acquisition of the facility. The deal is for the vehicle manufacturing facility alone in Sanand and not the engine plant, which Ford uses for the exports market.
An email sent to Ford India did not elicit any response. Tata Motors declined to comment.
The takeover will add to capacity at a time when utilization levels are running well ahead of 80-85% at the current monthly production rate.
Tata Motors is currently having peak production capacity of 50,000 a month, which translates into annual production capacity of 6,00,000 per annum. The tentative production plans shared with vendors suggest that the company is planning to produce around 550,000 units in the current year.
This means its plants will be running at a peak level at the end of current year, hence it would require additional production capacity to cater to incremental volume in the coming two years.
Ford’s Sanand plant has a total installed capacity to manufacture 3,00,000 units annually and its engine plant has installed annual capacity of 270,000 units. The US carmaker invested about $1 billion on the Sanand plant. After extending severance packages to the workers, Ford India facility has a workforce of 1,400 people at the factory. They will get jobs at Tata Motors.
The maker of Harrier and Safari SUV currently has installed capacity of 150,000 at its existing Sanand plant where it rolls out the entry-level Tiago, Tigor and Tigor EV electrified sedan and invested close to Rs 4,500 crore in the Gujarat plant. Tata Motors’ total installed capacity would be increased by 40% after taking over Ford’s Sanand production facility.
Typically, a greenfield car plant with capacity of 250,000 units requires an investment of Rs 4000-5000 crore and additional Rs 7000-8000 crore of additional ancillary ecosystem. Analysts believe if Tata Motors is able to purchase Ford plant for less than Rs 2000 crore it would be cost effective since the acquisition will be at a level lower than replacement cost.
Source: Economic Times