Stock Review: MARUTI SUZUKI

The Maruti Suzuki stock ended 1% lower on Wednesday to close at . 1,210.5 and is hovering just above its 52-week low of . 1,125.9 reached in late March 2011, as worried investors exit the stock, at a time when the company is grappling with labour unrest at its facilities in Manesar, Haryana.

Media reports estimate the losses to the company due to labour problems at between . 450 and . 500 crore since the strike began in early June. However, analysts at broking houses are still cautious on the potential impact on the company's performance in the June 2011 quarter and are not yet making any changes in their earnings estimates for Maruti. And that's because there is nearly 3-4 weeks of inventory across the company's dealer network and that should help Maruti deal with customer's requirements, in the short term.

However, the production facilities at Manesar, Haryana, where there is labour unrest, produces popular models like Swift and Dzire.

Analysts are worried that if this strike continues for a considerably longer period, it could force consumers to shift to rival brands.

This, in turn, could dent the company's growth prospects, in the medium to long-term. The impact of rising auto finance rates had already started becoming visible for the broader auto sector, prior to this labour unrest at Maruti. For instance, Maruti's total vehicle sales in the first two months of the current financial year grew barely 3.1% YoY compared to a 24.8% YoY growth in the financial year ended March 2011.

 
Besides, the broader auto industry continues to grapple with rising input costs, like steel and allied products, and that could continue to put pressure on operating profit margins for players in the short term.

Maruti Suzuki's standalone operating profit margin had already declined 340 basis points YoY to 9.9% for the year ended March 2011 despite a 25% increase in its total operational income to . 37,040 crore. Maruti Suzuki trades at a P/E of 15.3 times on a trailing four-quarter basis and we are neutral on the stock.