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India Equity Research Reports, IPO and Stock News
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● The current labour unrest affecting Maruti Suzuki brings to the
forefront the labour issues that the industry has been facing. With
the strike now spreading to its key supplier Suzuki Powertrain,
Maruti has had to halt production at both its plants.
● Given India’s labour laws, it is very difficult to fire workers during a
slowdown; hence the industry uses a lot of temporary workers.
Cost of temporary workers can work out to be much lower given
their wages are typically 30-35% lower and they do not receive
benefits. In smaller ancillaries, contract workers can be up to 50%.
● Despite lower automation, wage costs as a percentage of sales
for OEMs in India stand at 2-3%, significantly lower than the 10-
15% levels witnessed for OEMs abroad.
● Given local sensitivities, we believe foreign firms would find it
more difficult to handle industrial relations and for some new
entrants into the market it may not be plain sailing. HMSI has had
a number of labour issues at its plants and now that it is on its
own, industrial relationships could emerge as a key challenge.
Labour costs are low in India
Labour unrest is turning out to be a big problem for the Indian
automobile sector. Given India’s labour laws, which do not allow
employee lay-offs during a slowdown, the auto industry has increased
its share of temporary workers, reducing overall costs.
Not only can they be easily fired during a slowdown, their salary levels
are significantly lower than the permanent workers and companies
also do not need to pay them other benefits such as provident fund,
gratuity, annual bonuses, etc. A regular employee at a four-wheeler
company, for instance, would draw around Rs16,000-24,000
depending on his experience, plus productivity benefits, while workers
on contract doing similar work may get only Rs5,500-8,500 from the
contractor who employs them on behalf of the company. These
contract workers are not hired by the companies directly, but through
contractors. In some small ancillary companies, contract workers
constitute ~50% of the auto industry’s workforce.
Labour issues could impact production and costs
While this has helped Indian companies quickly cut down shifts and
production at the time of recession, it has become a big issue when
companies, both OEMs and their suppliers, now expand capacities.
The temporary labourers are now starting to demand equal wages
and rights to a permanent worker. While this problem has been
simmering for a long time, we believe it could turn into a big issue for
companies, especially for small suppliers where the gap between
temporary and permanent labour is high. Going forward, this could
lead to production disruption and also eventually lead to higher labour
costs for both OEMs and suppliers. Given the low margins of
ancillaries, the cost will likely ultimately be borne by OEMs.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
● The current labour unrest affecting Maruti Suzuki brings to the
forefront the labour issues that the industry has been facing. With
the strike now spreading to its key supplier Suzuki Powertrain,
Maruti has had to halt production at both its plants.
● Given India’s labour laws, it is very difficult to fire workers during a
slowdown; hence the industry uses a lot of temporary workers.
Cost of temporary workers can work out to be much lower given
their wages are typically 30-35% lower and they do not receive
benefits. In smaller ancillaries, contract workers can be up to 50%.
● Despite lower automation, wage costs as a percentage of sales
for OEMs in India stand at 2-3%, significantly lower than the 10-
15% levels witnessed for OEMs abroad.
● Given local sensitivities, we believe foreign firms would find it
more difficult to handle industrial relations and for some new
entrants into the market it may not be plain sailing. HMSI has had
a number of labour issues at its plants and now that it is on its
own, industrial relationships could emerge as a key challenge.
Labour costs are low in India
Labour unrest is turning out to be a big problem for the Indian
automobile sector. Given India’s labour laws, which do not allow
employee lay-offs during a slowdown, the auto industry has increased
its share of temporary workers, reducing overall costs.
Not only can they be easily fired during a slowdown, their salary levels
are significantly lower than the permanent workers and companies
also do not need to pay them other benefits such as provident fund,
gratuity, annual bonuses, etc. A regular employee at a four-wheeler
company, for instance, would draw around Rs16,000-24,000
depending on his experience, plus productivity benefits, while workers
on contract doing similar work may get only Rs5,500-8,500 from the
contractor who employs them on behalf of the company. These
contract workers are not hired by the companies directly, but through
contractors. In some small ancillary companies, contract workers
constitute ~50% of the auto industry’s workforce.
Labour issues could impact production and costs
While this has helped Indian companies quickly cut down shifts and
production at the time of recession, it has become a big issue when
companies, both OEMs and their suppliers, now expand capacities.
The temporary labourers are now starting to demand equal wages
and rights to a permanent worker. While this problem has been
simmering for a long time, we believe it could turn into a big issue for
companies, especially for small suppliers where the gap between
temporary and permanent labour is high. Going forward, this could
lead to production disruption and also eventually lead to higher labour
costs for both OEMs and suppliers. Given the low margins of
ancillaries, the cost will likely ultimately be borne by OEMs.
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