Rising land prices in and around Ahmedabad have forced three-wheeler manufacturer Atul Auto Limited to cancel its proposed Rs. 1.5 (US$ 30 million)expansion plan. The listed company will now look for a 100 acre plot elsewhere in the state or even outside it.

"Arrival of Tata Motors, Ford and Peugeot at Sanand resulted in sky-rocketing of land prices in the vicinity of Ahmedabad. After Maruti's announcement, land owners and dealers feel they can fetch higher prices and are consequently backing out on previous deals. The private owner of the land with whom we were negotiating raised the price exorbitantly at the eleventh hour, forcing us to scout for new location," said Mr. Vijay Kedia, CMD of Rajkot-based Atul Auto Limited.

The company plans to increase the light commercial vehicles as well as enter the four-wheeler segment. The proposed plant was to have a capacity to produce 30,000 units annually. The diversification from three-wheelers to two-wheelers is part of growth strategy of the company and as hedge against downturn in any particular segment.

The company feels that the new location can affect its business plans. "But we don't have a choice," said Mr. Kedia.

Atul Auto will also raise capacity at its existing site in Gujarat with an investment of Rs. 600 million and is looking for technical collaboration for the expansion. It plans to double the capacity of three-wheelers from 24,000 units to 48,000 and then to 54,000 by 2013-14. New models are being lined up for launch in the January-March 2012 quarter. Some of these will be launched with better fuel efficiency figures than its current lot of products. The work on technology to improve fuel efficiency is in progress at its R&D centre at Pune.

In order to decrease the pressure on its facilities in India, Atul Auto plans to set up assembly lines in Bangladesh and Sri Lanka. At 12,000 units annually, it expects a business of Rs. 1.5 billion from its Bangladesh operations. It had stopped exports last year to meet growing demand from its domestic dealers. Unlike Bangladesh, where it has a technology alliance with its partner who has invested in the assembly infrastructure, the company plans to adapt a joint venture model in Sri Lanka. Talks are at an advanced stage with the Sri Lankan partner and a final decision is likely to be taken in few months.