24
Jul
12

Maruti fresh labour troubles…

Maruti faced a fresh set of labour unrest and violence at its Manesar plant. One senior HR person died and several other management staff got injured in this violent attack from workers. 97 workers have been arrested so far by the police and several others are absconding. Last year also auto major had its share of strike by workers, but they were mainly peaceful. What triggered this suppressed anger of workers into such violence is a mystery.

Maruti declared lockout at its plant on Saturday. Manesar plant is important for Maruti as it rolls out Swift & Swift Dzire. As per today’s BS report (http://www.business-standard.com/india/news/joint-probe-into-maruti-riot-as-lockout-costs-firm-rs-600-cr/481276/), cumulative revenue loss out of this lockout till now is Rs 600 crore. As per today’s TOI report, Maruti management is talking about mass firing of workers who were involved in this violence act. India’s largest auto-maker has said that plant will remain closed till investigation into the case is over and they are able to get into the bottom of this labour unrest.

Bloomberg analyst mean EPS estimate for FY13 is Rs 85. Current share price of 1080 discounts EPS estimates by 12.7 times (forward P/E 12.7). one basic flaw in this P/E multiple is that one is not sure about current year EPS estimate of 85. No body is sure till when Maruti lockout of Manesar facility will last. Also, given the fresh concerns on Euro crises, yen has appreciated sharply. Yen appreciation impacts Maruti margins negatively. I think this presents opportunity on both sides, short and long. I have sold few July series calls and started selling August series calls. Below 1000 Rs,  Maruti will make for good long-term buy. While selling calls and shorting auto-major stock, one has to remember that it is high beta stock and moves both ways sharply. After touching its low of 900 in December, it rallied sharply 55% in 3 months to touch levels of 1400 in March.

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