Maruti Suzuki experiences 52-week low; Goldman Sachs suggests 'Hold'

Wednesday 19 October 2011, 10:17 AM by Vikas Yogi

Maruti Suzuki Limited continues to remain entangled in the most dismal phase of all times as its shares witnessed a severe nosedive, tumbling a 52-week low of Rs. 1022.10 recently. Frantic investors have expressed their concern regarding the ongoing labour unrest at various Maruti plants, as it would adversely affect the production capacity and profitability of the company. As a matter of fact, Maruti Suzuki has halted the production process at its factory in Gurgaon for two days, in the wake of the strike at its component supplying plant in Manesar.

Workers at Maruti Suzuki's Manesar plant called for a strike protesting against the suspension of 44 co-workers, demanding reinstatement. These workers were not permitted to rejoin the company after an earlier 33-day deadlock with the management that ended on 1st October.

Maruti Suzuki experiences 52-week low; Goldman Sachs suggests
Maruti

Goldman Sachs in a recent report has depicted low production estimates for Maruti Suzuki Ltd, and provided a 'Neutral' rating with a 12-month price target of Rs. 1071, as against Rs. 1173 target earlier.

If the brokerage report is to be believed, the undeterred disturbances prevailing at the Maruti plants have proved detrimental for the company's production capabilities. It says, "Owing to persistent labour strikes at Maruti Suzuki's Manesar plant and supplier Suzuki Power Train, we cut our volume estimates for Maruti Suzuki to 1.2mn units for FY12E (from 1.35mn) with further potential downside should the current impasse continues."

Another setback of the stalemate is that the new capacity at the Manesar plant, which was to target the high demand owing to the festive season cannot be used to its fullest potential. According to a report, the undying labour unrest at Maruti Suzuki Ltd has cautioned other auto companies, as both Maruti and its vendors have estimated a combined loss of around Rs. 3,000 crore since the start of the strike earlier in June this year.

The government has witnessed an excise revenue loss, which is estimated to be around Rs. 350 crore, while the company has already suffered a big jolt that counts for around Rs. 1500 crore.

If reports are to be considered, one comes to know that since the first round of strike in June this year to over 30 days-long impasse from 29th August to 1st October, Maruti Suzuki has suffered a total production loss of over 51,000 units. Moreover, the fresh strike at the Manesar plant from 7th October has further worsened the situations.

India's largest car maker has been struggling to revive its performance from a very long time now. What discourages the company even more is the fact that the situations are deteriorating further, as the upcoming festive season is getting closer and closer.

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