The Hinduja group flagship Ashok Leyland has chalked out an ambitious Rs 650 crore (Rs 6.5 billion) expansion plan for the next three years.

The country's second largest commercial vehicle maker plans to ramp up its existing capacity, set up a separate facility for its new generation vehicles, and invest in research and development activities.

The company will undertake its capacity expansion in two phases. The first phase will involve ramping up the capacity from 50,000 vehicles to 67,500 while phase two will see the capacity going up to 85,000 vehicles.

Further, the company is planning to set up a 10,000-unit capacity facility for manufacturing new generation vehicles. The money will also be used for adding to the company's engines and gearbox capacity and research and development (R&D) on new products.

"The expansion plan will be funded in part by the $100 million that the company is planning to raise through foreign currency convertible bonds. The remaining Rs 200 crore (Rs 2 billion) will come from internal accruals," said a source in Ashok Leyland confirming its expansion plans.

Ashok Leyland announced its plans of raising $100 million via FCCBs in February 2004 and has already obtained shareholder nod for the move.

Ashok Leyland had last year said it plans to increase its market share to 50 per cent from around 35 per cent in the next three to five years. The company had targeted the increased market share through higher sales of medium and heavy commercial vehicles for intracity transport and smaller trucks.

The company is expected to invest a part of the funds in its Hosur-I plant for engine expansion. This will entail adding to the capacity of its 'H' series engines and starting production of the 'J' series engines.

It will also increase the capacity at its gearbox plant in Bandara by more than 50 per cent. It has also lined up a slew of new launches in the truck and bus segments for the next two years.