In a bid to take on car market leader Maruti [Get Quote], India's second largest carmaker Hyundai Motor plans to introduce a compact car, which could be powered by a 1.2 litre diesel engine.

The new car would enjoy the benefit of the excise duty cut announced in this year's budget.

"We are developing a new version of a compact car as we need more models in the category," H S Lheem, managing director, Hyundai Motor India told PTI. Dispelling talks about the new car being a replacement for Santro, he said, "This will be a car in the same segment of Santro but this will not be a replacement of our flagship brand. Santro would continue to be in the market".

"I think, we can have more than one car in the compact car category as the volume of the segment is huge," he said.  He did not disclose the specifications of the compact car, however, said the company was working on a 1.2 litre diesel engine.

"We are currently doing feasibility study. The company is testing the engine in the country with regard to cost competitiveness as localisation is important (for the volumes segment)," he said.

HMIL's parent company in South Korea already has a 1.2 litre diesel engine, which is being exported to European market. Lheem also said HMIL will roll out two new models in 2007.

"These will be on a completely new platform and new design coming out of the second plant in Chennai," he added. Asked if HMIL's plan to bring a compact car was a bid to take mileage out of the benefit of the excise duty cuts, he said, "It is not necessarily a direct attempt but we also need to increase our product portfolio."

The move by HMIL to bring in the new compact car assumes significance on the backdrop of 8 per cent excise duty cut announced in this year's Budget.  Car market leader Maruti has five models, which enjoy the benefit of excise cut while

Hyundai has only Santro. Lheem also said the company was giving a further impetus to boost the sales of its high-end hatchback Getz. "We are working on improving its design and features and also about its positioning," he said.

Asked if the 1.2 litre diesel engine that the company was working would be applicable for Getz, he said, "may be it can also fit".