Mumbai: South Korean heavy engineering giant Hyundai Group will invest about Rs260 crore for setting up a construction equipment plant at Chakan near Pune in Maharashtra.

Hyundai Heavy Industries (HHI), a subsidiary company of the Hyundai Group, signed a memorandum of understanding (MoU) with the Maharashtra government for setting up the plant.

The MoU was signed by state principal secretary (industries) V K Jairath and Hyundai chief operating officer K H Park in the presence of industries minister Ashok Chavan.

The factory will initially produce hydraulic excavators and will later add production lines for other construction equipment.

Production will commence in the next two years with initial production capacity of 3,500 units per year. The facility will have a fabrication shop, assembly lines and a paint shop. The company plans to increase the rate of localisation of components to 80 per cent within the next five years.

"We hope to increase our corporate value through the operation in India, and expect to be in sustainable growth in the future. The manufacturing unit will also export to the Middle East, south east Asia and Africa," Park said.

"Our new plant will serve the core activity of global business of the Hyundai construction equipment division, which will help to accomplish HHI''s vision," said J S Kim, managing director of HHI.

HHI estimates the demand for construction equipment in India to go up as in the case of China, where the company has nearly 18 per cent of the market share.