Maruti Stalemate | In a first, edgy investors reach out to workers5 min read . Updated: 17 Oct 2011, 04:10 PM IST
Maruti Stalemate | In a first, edgy investors reach out to workers
Maruti Stalemate | In a first, edgy investors reach out to workers
New Delhi: Alarmed by the frequency and growing intensity of industrial unrest leading to disruption in production schedules in the last four months, a group of investors in Maruti Suzuki India Ltd, India’s largest car manufacturer, took the unprecedented step of reaching out directly to the striking employees through a conference call.
However, if the investors were looking for any reassurance, they did not get it. Instead, the agitating employees struck an even more strident pose, reviving their earlier demand for the recognition of a new union to represent them, even while reiterating their demands that triggered the latest face-off.
Maruti chairman R.C. Bhargava said late on Friday that workers had begun vacating the factory premises. On Thursday, the Punjab and Haryana high court had issued an order asking the striking workers to do so. Bhargava refused to comment on the call with investors.
Shiv Kumar, a leader of the unrecognized union, confirmed the development. “We don’t want confrontation with the government and the court. Therefore, we are vacating the premises, but the strike will continue."
Goldman Sachs in a recent report has cut production estimates for Maruti Suzuki and maintained a “neutral" rating on the stock, with a 12-month price target of Rs1,071, a cut from the Rs1,173 target earlier.
Morgan Stanley said in a note that “any worsening in labour disputes could potentially drive structural downside risk to Maruti Suzuki’s margins from higher staff costs in the long run". Maruti Suzuki’s current staff cost, as a percentage of revenue, is 2% of net sales, the lowest among peers in India and Asia.
A Nirmal Bang Institutional Equities official, who didn’t want to be named, said, “We approached them and asked them to answer questions of investors and shareholders, who wanted to know the other side of the story."
Those who attended included funds such as Birla Sun Life Mutual Fund, SBI Mutual Fund and Bajaj Allianz; investment management companies such as Envision Capital, Standard Chartered, UTI Asset Management; and brokerage firms such as Emkay Global Financial Services Ltd and Motilal Oswal Securities Ltd. They could not be immediately reached for comment.
On BSE, shares of the car maker fell 2% to Rs1,037 apiece immediately after the conference call, having opened on Friday at Rs1,053. It closed 2.65% down at Rs1,028.45. The benchmark Sensex gained 1.18% to 17,082.69 points. Maruti Suzuki’s stock has tumbled 16.6% from Rs1,233.50 on 3 June, when workers went on strike for the first time, to Friday’s close, which is a 52-week low.
The agitation comes as competition gets more intense in the small-car segment. Sales at India’s largest car maker fell 17% to 66,667 units in September from 81,060 units a year earlier. The company has suffered a revenue loss of at least Rs1,200 crore this year because of labour strife. Its market share has fallen by 5 percentage points to 39.5% in the six months to September.
The strike has also affected operations at the company’s Gurgaon plant, apart from its Manesar facility. On Thursday, the company decided to suspend production at the Gurgaon plant till Saturday, as the strike has hit component supplies from a Suzuki-owned company.
“This is in view of the non-availability of components for the cars," the company said in a statement. “There has been no supply of diesel engines and also transmissions from Suzuki Powertrain India Ltd (SPIL) as workers continue to remain on strike at the SPIL plant."
A top Maruti official was critical about the workers’ commitment towards seeking a resolution. “They seem to have a fool-proof plan in place," said R. Dayal, executive director (production engineering) at Maruti Suzuki. “First they signed the agreement and then broke our trust by striking work. Now it looks like it was a ploy to get inside the plant."
During the conference call, the representatives of agitating workers also raised fresh demands—restoration of salary cuts, and a pickup and drop service from the plant.
“We cannot be a part of the Gurgaon (company-recognized) union. That is one thing that is very clear in our mind," Sonu Gujjar, leader of the striking workers at Maruti Suzuki’s Manesar unit, told investors in the conference call.
Gujjar demanded the reinstatement of all 1,200 temporary workers. According to him, the company was to deduct salary for 31 days for the earlier strike period, but ended docking pay for 64 days. He said this was unfair as, to get inside the plant, the striking workers had to sign a good-conduct bond.
According to Gujjar, there was no dialogue at the moment and the agitation could spread across the Gurgaon-Manesar industrial region.
“We are open for discussions, while the management is reluctant to do so," he said. “If there is no solution immediately, the tool-down strike could spread to other companies in the belt as we have support from other trade unions also."
Backing Maruti Suzuki’s workers are others from at least 12 companies in Manesar’s Industrial Model Township. These include SPIL, which supplies engines and transmissions to Maruti; Suzuki Castings, Suzuki Motorcycle India Pvt. Ltd and auto parts suppliers Satyam Auto Components Ltd, Endurance Auto and Hi-Lex India Pvt. Ltd.
The workers rejected accusations of damaging machinery. “We know that these machines are our livelihood. We have not done anything like that. The company is just trying to put pressure on the state administration by saying all this," Gujjar said.
Maruti Suzuki’s Manesar workers ended a month-long strike a little over a week ago, giving the company hope that it would be able to step up production heading into the festive season, when sales traditionally perk up, and offset some of the recent revenue losses.
The latest strike is the continuation of a 13-day protest in June and a 33-day lockout that ended on 1 October. The second strike was the result of Maruti Suzuki’s decision to prevent workers, who hadn’t signed the good-conduct bond, from entering the plant.
The bond required workers to commit that they would “not resort to go slow, intermittent stoppage of work, stay-in-strike, work-to-rule, sabotage or otherwise indulge in any activity which would hamper the normal production in the factory".
Car sales in India are expected to rise just 2-4% this fiscal year, down from an earlier forecast of 10-12%, industry body Society of Indian Automobile Manufacturers said earlier in the week.