Home / Companies / Uncertainty at Manesar puts pressure on Maruti shares

New Delhi: With Maruti Suzuki India Ltd losing at least 60 crore a day in revenue owing to the latest lockout at its Manesar plant and uncertainty continuing over production resuming there, analysts are recommending investors to sell their stakes, anticipating a longer impact of the violence that unfolded last week.

Risk factor: Maruti’s shares have dropped nearly 10% since the violence erupted at its Manesar plant. Photo: Ramesh Pathania/Mint

“We see present working situation at Manesar is bit of risk for the top management, as the incident has created a sense of fear in minds of people, which will keep them away from the work at the same location," analysts R. Murali Krishnan and Mitul Shah of Karvy Stock Broking Ltd wrote in a note to clients on 25 July.

“On the other hand, workforce from other companies in Gurgaon-Manesar belt joining in support of Manesar workers is expected to aggravate the issue in coming days. We don’t see light at the end of the tunnel, at least for the time being," they added, downgrading their rating on the carmaker to underperform from buy.

The plant produced at least 1,900 units a day of Maruti’s top-selling models—Swift, Dzire, SX4 and A-Star.

It is imperative for Maruti to resolve the crisis ahead of the lucrative festival season that begins next month if it has to cash in on the pent-up demand in the Indian car market.

The company is expected to discuss the issues at its upcoming board meeting on Saturday to release its quarterly results.

“Whatever is happening at Manesar is not on the agenda but there is no doubt that the issue will be discussed at length during the meeting," Maruti’s chairman R.C. Bhargava said in a phone interview on Tuesday. “To be sure, the board is not going to deviate from the fact that what is paramount is ensuring safety. We have to be satisfied that there is no risk at resuming work at the plant."

Maruti’s managing director and chief executive Shinzo Nakanishi said the board will review the damage the company suffered due to the violence at the factory. “But I don’t know if we will be able to take a call on resuming production," Nakanishi said.

Another top official, speaking on condition of anonymity, said that “unless the (Haryana) state government completes its probe, there is no way the company would start production." The state has formed a special investigative team to probe the violence and appointed Supreme Court lawyer K.T.S. Tulsi as the public prosecutor in the case.

Maruti could shift some of the production of its Manesar models to its plant in Gurgaon, where it produces the Ertiga, Ritz and Eeco, but some analysts say this will be difficult.

“...shifting production (to Gurgaon or Gujarat) is a cumbersome/expensive/time-consuming option," wrote analysts Ashish Nigam and Kunal Jhaveri of Antique Stock Broking Ltd in a 23 July report, adding they were placing their buy rating on the Maruti stock under review.

“While the recent stock correction might have captured most of the financial impact that could arise from the lock-out, we expect the stock to languish till the issue is completely resolved."

Prior to the incident, Maruti was Antique’s top pick in the auto sector on the expectation that it “could benefit from multiple cycles turning in its favour," they added.

Maruti’s shares have dropped nearly 10% since the violence erupted. On Thursday, the shares gained 0.44% to end at 1,107.85 on BSE, on a day the benchmark Sensex fell 1.22% to 16,639.82 points.

During last year’s series of strikes at the Manesar plant between June and October, Maruti suffered a total revenue loss of 2,500 crore and its market share fell by seven percentage points to 38%, which still leaves it the market leader ahead of Hyundai Motor Co. that has a 20% share.

Maruti’s market share, though, may decline further following the latest lockout, according to Ashvin Shetty of brokerage Ambit Capital Pvt. Ltd, who has had a sell rating on the stock since January.

“If the lockout continues for long, we will see some cancellation in bookings by consumers," said Shetty.

“If the production does not resume quickly, there is a possibility of its share moving to its rivals," he added.

JP Morgan continues to have a sell rating on Maruti, largely because of the overall slowdown in the auto market, its sector analyst Aditya Makharia said.

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