Manesar plant: Road Ahead for Maruti Suzuki

The lockout at the Manesar plant could significantly damage Maruti Suzuki's financials if it fails to reach an early resolution, analysts warn. Already, India’s biggest carmaker has seen its shares shed 7.5 per cent in the past week..Analysts and stock market experts have told clients that they are reviewing their rating on the stock. A section of analysts believes that a prolonged lockout could even have a structural impact on Maruti Suzuki’s financials..According to an estimate by securities firm Karvy, a lockout beyond two months could shave as much as Rs 110 crore off Maruti's net profit every subsequent month. Maruti Suzuki reported net profit of Rs 1,635 crore for the year ended March 2012. .An analyst at Karvy who tracks the company said in a note that senior management personnel were still scared to enter the plant..“Psychologically, it is very difficult to adjust with people who were violent with them. This we believe is a daunting task for the company and there is no quick fix here," the Karvy analyst said in his note. "Maruti is caught between the devil and the deep sea. We are not saying it will linger forever but will take time as the situation is more than a mere unrest." .Antique Stock Broking, a Mumbai-based firm, said on Monday that it would review the situation following a visit by its team to Manesar..Here are some key points made by analysts:.• Media reports said that the company could consider shifting the Manesar plant to Gujarat. However, this is easier said than done. The company has secured land (700 acres in Mehsana, one of the largest cities in North Gujarat, situated near Gandhinagar and Ahmedabad), but will require time to set up operations..• In the wake of the incident, Maruti could consider setting up higher capacity than planned earlier. Gujarat was initially planned to be a exports-only plant, given its proximity to major ports. However, even if the company fast-tracks the setup process, there is a limit to how much schedules can be advanced, which means the plant will not be ready before 2015. Also, it can shift only a limited portion of production to Gurgaon given that the diesel engine mother plant (Suzuki Powertrain) is housed in the Manesar facility..• Hence, Maruti will remain dependent on Manesar till 2015. Of the 600 acre facility, almost a third is still unutilised (which will house the Manesar C assembly line). This is why, despite the violence at the plant, the management has reiterated that it will not shift production and are, in fact, looking to expand capacity there. .• Also, it’s safe to assume that the Haryana government will extend its full support to Maruti in the matter, because the company (along with all its ancillaries) moving out of Manesar puts billions of dollars worth of investments in the region and the thousands of jobs that generates at risk. Such a scenario would spell doomsday for this industrial belt..• “We believe that the current imbroglio at Manesar poises certain risk to the senior management, which may force them to remain abstain from work,” according to an analyst at Karvy. “As per our understanding, all senior management including these 100 personnel are no longer willing to work at Manesar in this situation. They seek security of life rather than monetary benefits. Replacement of such big human resources is very difficult for the company. They expect the arrest of all the people (over 500 workers) involved in violence to ward off the fear and risk to life,” the brokerage added..• Antique Stock broking suggests, once the investigation is completed, transfer or swap of the traumatised Manesar supervisors/managers to the Gurgaon plant. This is because the workforce at Gurgaon is seasoned and matured with an average age of 45 years. The average age of workers in Manesar is 25 years..• After getting approval from the Haryana Labour Department, Maruti Suzuki could also consider de-recognising the current Manesar workers’ union.

Manesar plant: Road Ahead for Maruti Suzuki

The Noida-based company managed to beat estimates despite reporting a forex loss of Rs 34.63 crore. Vineet Nayar, Vice Chairman and CEO, and Anil Chanana, CFO, discuss the result on NDTV Profit.

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