Stock Review: Maruti

HARYANAseems to have become a hot bed of industrial action. A section of workers at Maruti Suzuki's Manesar plant have gone on strike since June 4, demanding recognition of a new trade union at the plant. Given that the new plant is critical to the company, as it produces diesel variants of models such as SX4, Swift and Dzire along with A-Star, which have a long waiting period. The strike, therefore, will start hurting the company a lot more if the stalemate continues.

Manesar employs 2,500 workers and has a production capacity of 350,000 units (25 per cent of the total capacity). By September, a second line of production is slated to come up in the same factory. Analysts believe the company cannot afford to delay this line, as it is supposed to produce Dzire and Swift diesel, which already have a waiting period of over a month.

Edelweiss Capital says the company has an option of compensating for the loss of Swift production by ramping up output at the Gurgaon plant. However, production of other models is likely to get affected if the stalemate continues. The report goes on to say that the production loss is estimated at 1,200 units a day ( `48 crore in value) and `4.8 crore in profit (0.2 per cent of FY12E EPS `82).

After terminating 11 employees on Monday, terming the strike illegal and that sufficient notice for the same was not given, the company has started negotiations with the striking employees. The company is exploring unitwise holding union model, such that unions at every plant can look into their own factory related problems.

While the impasse is expected to be resolved soon, analyst Deepak Jain, AVP (auto) at Sharekhan, believes the company probably needs to de-risk its manufacturing facilities, as Haryana has seen several such incidents in recent times.