18
Oct
11

Maruti trouble continues..

Maruti strike continues. Production across four plants in Gurgaon and Manesar has come down to 1600 units from 5000 units. On Friday and Saturday there was zero production. Few days back there was news article in BS which reported that Maruti along with component vendors has incurred combined loss of 3000 crore. On 13th October, Haryana government labor department declared strike illegal. High court has asked protesting workers to vacate company premises. Workers have obeyed high court orders and decided to vacate company premises.

There are lot of automakers and auto component companies clustered around Gurgaon belt. This region has seen lot of labor troubles in recent past. This makes you think that problems are deep-rooted. Lot of money due to real estate is flowing around this region and workers are getting greedy because of that. There seems to be resentment with lifestyle difference when workers goes around the region. In today’s BS there was one article, http://business-standard.com/india/news/with-agefamilyside-workers-show-no-signgiving-in/452956/. When I read these kind of articles, I become more confident that this strike is not going to end in a hurry. Yesterday ex-MD of Maruti, Mr. Jagdish Khattar said on CNBC-TV18 that average age of Manesar plant worker is around 24-25. Even their union leader, Sonu gujjar is 27 years old (http://articles.economictimes.indiatimes.com/2011-09-17/news/30169237_1_manesar-plant-maruti-s-manesar-sonu-gujjar). Some of the workers are young and there might be lack of maturity on their part. But obviously there would be other side of story and some of the things workers are saying might be true.

For Maruti, this strike couldn’t have come at a worse time. Industry as a whole is struggling with slow growth in FY12. SIAM has cut the car industry growth forecast to 2-4% for FY12. During festive season, company would have hoped to recover some of the lost ground. Few days back Hyundai launched its small car e-on in direct competition with alto. This will put pressure on pricing power of Maruti. Overall, things are not looking good for country’s largest automaker.

Sometime back there was one news article, according to which Volkswagen might go for hostile takeover of Suzuki. This would automatically trigger open offer for Maruti Suzuki which is 51% subsidiary of Suzuki. Volkswagen holds 20% in Suzuki corporation and had JV with it. This JV has been called off and there are rumours doing round about hostile takeover. I doubt if this hostile takeover would be successful with Japanese company. But in case Volkswagen decides to proceed with hostile takeover, it would be biggest risk in writing calls of Maruti. Although on 14th October, Suzuki served Volkswagen legal notice for breaching their JV, http://www.ft.com/intl/cms/s/0/084dfeda-f60c-11e0-bcc2-00144feab49a.html#axzz1aoePNSCg. Given the cultural differences, I don’t think Volkswagen will attempt hostile takeover of Suzuki. Now I am more confident about writing Maruti November series 1200-1250 calls. If strike is called off then there would be relief rally and that would be right time to write Maruti calls.

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