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Maruti Suzuki India
Manesar plant strike comes to an end
The strike at Manesar plant was called-off yesterday. The damage is expected to
be the loss of 12,600-car sales volume, which are high-value items and on the
wait list. With its regular maintenance shut-down and Toyota small car launch by
month end, sales volume growth is expected to remain under pressure.
Worker strike called off after 13-day wait
! The 13-day worker strike at Maruti's Manesar plant (27% of its total capacity) was called off
last night, as both management and workers reached an amicable settlement.
! As per the settlement, management has agreed to reinstate 11 workers, whose services were
terminated for instigating the strike. As part of the agreement, workers have dropped their
demand for the formation of a separate union for the Manesar plant.
Strike to impact 1Q financial performance sharply
! Manesar plant produces the most in demand products in Maruti's portfolio: Swift Dzire, SX4,
A-star and part of Swift.
! Management has guided that it has sufficient A-star inventory to cater to export and domestic
demand. However, for its diesel version of the rest of products, which were already on waiting
period of 1-3 months, the loss of sales volume will be permanent and difficult to recover.
! Also, considering higher realisation of products from this plant (around Rs0.4m per car vs
company average of Rs0.29m) and strong product pull resulting in better EBIDTA margins,
the impact of the strike will be severe in 1Q.
! Building the impact, we expect normalised PAT to dip 16.7% yoy and 30.9% qoq to Rs4.4bn,
ie, EPS of Rs15.3. EBIDTA margin to slip to 8.9%, down 150bp yoy and 90bp qoq.
Short-term relief from volume, but Toyota new small car may trigger price war
! Press reports (Economic Times, 17 June) suggest that Toyota small car Liva is expected to
be launched on 27 June, with attractive entry level pricing - 10% cheaper than comparable
Maruti Swift. With success of recently launched entry level sedan Toyota Etios, it plans
ambitious capacity ramp-up plan for the Liva. This may start a price war in the compact car
segment, which is already reeling under weak demand growth and high discounts.
! Hence the short-term relief from the lifting of the workers strike may not last long, as the
company has to brace for the sale of new capacity coming on stream in September 2011
(20% additional).
! We remain cautious on Maruti, whose product demand is under stress due to rising petrol
prices, interest rates and competition. We maintain our Hold rating due to its attractive
valuation and cash-rich balance sheet. We wait for Toyota small car impact to go through
before the Maruti new product R3 launch euphoria builds-up for CY12.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Maruti Suzuki India
Manesar plant strike comes to an end
The strike at Manesar plant was called-off yesterday. The damage is expected to
be the loss of 12,600-car sales volume, which are high-value items and on the
wait list. With its regular maintenance shut-down and Toyota small car launch by
month end, sales volume growth is expected to remain under pressure.
Worker strike called off after 13-day wait
! The 13-day worker strike at Maruti's Manesar plant (27% of its total capacity) was called off
last night, as both management and workers reached an amicable settlement.
! As per the settlement, management has agreed to reinstate 11 workers, whose services were
terminated for instigating the strike. As part of the agreement, workers have dropped their
demand for the formation of a separate union for the Manesar plant.
Strike to impact 1Q financial performance sharply
! Manesar plant produces the most in demand products in Maruti's portfolio: Swift Dzire, SX4,
A-star and part of Swift.
! Management has guided that it has sufficient A-star inventory to cater to export and domestic
demand. However, for its diesel version of the rest of products, which were already on waiting
period of 1-3 months, the loss of sales volume will be permanent and difficult to recover.
! Also, considering higher realisation of products from this plant (around Rs0.4m per car vs
company average of Rs0.29m) and strong product pull resulting in better EBIDTA margins,
the impact of the strike will be severe in 1Q.
! Building the impact, we expect normalised PAT to dip 16.7% yoy and 30.9% qoq to Rs4.4bn,
ie, EPS of Rs15.3. EBIDTA margin to slip to 8.9%, down 150bp yoy and 90bp qoq.
Short-term relief from volume, but Toyota new small car may trigger price war
! Press reports (Economic Times, 17 June) suggest that Toyota small car Liva is expected to
be launched on 27 June, with attractive entry level pricing - 10% cheaper than comparable
Maruti Swift. With success of recently launched entry level sedan Toyota Etios, it plans
ambitious capacity ramp-up plan for the Liva. This may start a price war in the compact car
segment, which is already reeling under weak demand growth and high discounts.
! Hence the short-term relief from the lifting of the workers strike may not last long, as the
company has to brace for the sale of new capacity coming on stream in September 2011
(20% additional).
! We remain cautious on Maruti, whose product demand is under stress due to rising petrol
prices, interest rates and competition. We maintain our Hold rating due to its attractive
valuation and cash-rich balance sheet. We wait for Toyota small car impact to go through
before the Maruti new product R3 launch euphoria builds-up for CY12.
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