Tuesday, August 21, 2012

>MARUTI SUZUKI LIMITED: Manesar plant to resume production from August 21 under heavy security cover

Manesar plant to resume production from August 21 under heavy security cover
In a press conference today, Maruti announced that it will resume production at its Manesar plant from August 21 under heavy security cover. With this resumption, the shutdown will have lasted for around 1 month – broadly in-line with what we were building into our numbers. As per an investigation conducted by the company, they will fire 500 regular workers who were involved in the misconduct on 18 July. Further, the company will no longer employ contract workers on the production line; however, MSIL will keep 20% of the total workforce on short-term agreements. According to today’s announcement, current contract workers (1,869 employees) will be given an opportunity to join the company as regular (ie, permanent/non-contract) workers provided they meet the company requirements.

Production will get ramped up gradually
As per the company, about 300 workers will resume production from August 21; the company will aim to manufacture 150 cars daily initially as compared to full capacity of around 1,600 cars daily. Production will increase gradually as the company hires more workers, in our view. If everything goes smoothly, we believe the company may take another month to achieve full production. In our view, the company may be able to largely make up for lower production later on during the year. Hence, our estimates are unchanged at this stage.

Do not expect significant stock reaction; maintain Neutral
We believe expectations around the resumption of production have been built in to the share price from last week. Therefore, we do not expect any significant stock reaction on this announcement. Maintain Neutral.

To read report in detail: MARUTI SUZUKI