Maruti likely to have incurred a loss of Rs. 540 crores due to strikes

There’s always a price to pay whether you play an advantage or defend a disadvantage. According to company officials, Maruti Suzuki has indeed lost Rs. 540 crores revenue wise over the past 2 months due to labour conflicts at their Manesar plant.

A spokesperson belonging to the company says in September they had managed production of 10,000 units from their Manesar plant, though normal production otherwise would have been 22,500 units every month thus causing a loss of Rs. 3 lakhs per each car not produced.

The ongoing labour issues so far has led to not producing at least 12,500 units in September 2011 that resulted in a loss of Rs. 360 crores or more. However, in August 2011, the company did produce 6000 units, which target wise was lesser when workers slowed down work that resulted in a Rs. 180 crores loss.

An August notice of the company says the workers never worked even after calling off stay over the strike, which was thought to be illegal. These issues led to the company producing only 96 units on August 24th when compared to a production of 900 units daily.

Maruti likely to have incurred a loss of Rs. 540 crores due to strikesAnalysts further note that Maruti might have incurred losses of about Rs. 40 crores in profits due to persisting labour rift between the management and workers over the last 2 months. Analysts have compared the company’s margins from last year and expect it would have a drastic effect on profitability, although profits are less likely to get affected as the yen strengthened against rupee until the 2nd quarter. The company has made a lot of savings by non-payment of salaries to its employees during the last 2 months, which in a way could bring in some reconciliation, and the labour costs itself is 2% on their net sales.

The progress at Manesar is still bleak due to prolonged strife continuing since June 2011 when workers went on a 13-day strike for Maruti not agreeing to recognise a new union called Maruti Suzuki Employees Union. During that timeframe, Maruti had incurred losses of Rs. 340 crores. Going back, production was hit at Manesar when company forced labourers to sign the ‘good conduct bond’ and didn’t allow anybody to enter the factory premises unless they signed the bond. This was initiated by Maruti when they were distressed to find out workers were trying to sabotage components deliberately in the last 2 months. Workers heaved a sigh of relief after strong backing from trade unions in Haryana who believe the management was wrong in forcing workers to sign the bond.

The situation slowed productions of Maruti’s new Swift, which already has hit an all-time high bookings record for any car in India and also the production of SX4 and A-Star.

Around 30 brokerage companies did recommend buying the stocks, 18 firms have told to hold and 10 firms did ask those who invested to sell.

Brokerage companies like Ambit Capital, Brics Securities and Kotak Securities have lowered down the stock over the past 2 weeks.

Analyst Kothari says they believed interest rates would be rectified in the beginning 6 months of 2012 hence allowing the volumes to bounce back. He told they expected Maruti’s growth at 12 per cent next year and that would be good considering the drastic fall this year.

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