Sutlej Motors, based in Jalandhar in Punjab, expects to roll out a ‘significant’ number of buses by year-end or early next year, the paper said.

"They found (India) an attractive market and we have signed an agreement with them," the paper quoted sources in Sutlej Motors as saying.

The paper said a spokesman for the world's fifth-biggest car maker confirmed the company was in talks with Sutlej Motors.

"We (are) currently doing a feasibility study... there is an option that we may have local partners to make the body or chassis," the paper quoted the spokesman as saying.

"We definitely will not be rolling out any buses this year and cannot give an exact time frame for this," the paper quoted the spokesman as saying.

India's bus market is dominated by Tata Motors Ltd. and Ashok Leyland Ltd.

Demand for luxury buses is growing as highways improve and rising incomes boost domestic tourism.

Sweden's Volvo, which has the biggest share of this market, also launched city buses in Bangalore earlier this year. Its facility near Bangalore has a capacity to make 1,200 trucks and buses a year.

DaimlerChrysler India sells the flagship Mercedes-Benz and the super-luxury Maybach cars. It sold 1,924 units in 2005, its best year in India so far.