Kia Motors set to invest Rs10,000 cr; Andhra likely destination

South Korea's Kia Motors may put in as much as Rs10,000 crore in one of the biggest foreign direct investment projects in India, with the arm of Hyundai Motor 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 The Economic Times that Kia, a unit of South Korea's biggest carmaker, has chosen Penukonda in Anantapur district in southern Andhra Pradesh, where it is starting the process of buying land for the factory. Kia's choice of Andhra Pradesh - amid intense rivalry between states to draw investments - 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 Rs10,300 crore, with first phase of investment amounting to about Rs6,000 crore,'' said one of the ET's sources. ''The first phase of the production facility will have an installed capacity to produce 3 lakh units a year.''

The Industries and Commerce department of Andhra Pradesh has on 13 April issued government orders for acquisition of nearly 600 acres of land, paying Rs10.5 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 on the verge of finalising the agreement with best possible incentives for the Korean firm, said an ET source, adding that ''a formal agreement between AP and Kia Motors is expected shortly''.

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 also close to Bangalore, Karnataka's automotive belt.

Kia has already engaged with several vendors in India through Hyundai Motor India's sourcing arm Mobis. An executive of a firm 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.''

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 in check and bring in 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.