Maruti To Begin Operations At Mansesar

The Manesar plant of Maruti Suzuki India Limited (MSIL) has been under the radar over a year now with strikes at around the same time last year and with a violent outburst on the evening of July 18, 2012, leading to a month-long production shutdown. The management shut the plant down over concerns of safety since the July row led to 96 supervisors and managers injured and a general manager burnt to death. The police arrested a number of workers and union leaders and started legal proceedings on them and the company has decided to sack about a third of their 1,500 permanent workforce. Also, MSIL has declared a policy to not employ contract workers - the disparity between permanent and contract workers to have been the cause of the issue.

The company, on August 16, announced that they would resume production at the Manesar plant from August 21, starting with 150 units per day of Swift and Dzire (which the company ran out of inventory on) - a tenth of the production capacity of the facility. This would be carried out with a workforce of 300 and production would be increased gradually in phases. Multiple steps have been taken by the state government to enhance security at the plant to ensure safety and to avoid any further disruptions. These, as per MSIL’s announcement include:

1) Setting up a rapid action force of 500 police personnel headed by a senior police officer near the Manesar area. In each shift 100 of them will be in the Maruti Suzuki Manesar factory.

2) 40 personal security officers (PSOs) have been provided for the safety of managers, supervisors and where necessary, the workers.

3) Security arrangements at the residences of the employees.

In addition to this, MSIL has created a special force of 100 security personnel in addition to the existing security force. The entire fiasco that resulted in a complete shutdown for over a month has resulted in huge losses, let alone the increased uncertainty among investors, workers and management. Overall, due to non-production of key models, the loss over the period of the lockdown is expected to be around Rs 2,000 crore. The company has also had to spend an extra Rs 10 crore on repairs, according to media reports. The cumulative financial loss for this situation has been lesser than the loss witnessed by the company due to the series of strikes last year which summed up to 60 days. The costs of this production halt though will be seen gradually over the next two quarters. The company will see higher pressure on margins due to added employee costs. Of the total workforce of 3,300 about 1,500 were permanent workers. With the policy to gradually phase out contract workers, who work at wages that are less than half of the permanent ones, the company is likely to see a magnificent increase in employee costs. Moreover, the company has sacked about 500 people who have been given compensation in the form of three months salary and half-month for as many years as they have worked. These factors are surely to show their effect on margins along with the topline being affected.

Nonetheless, the company has made several policy changes to avoid similar situations and the state government has stepped in to tighten security measures. The uncertainty around the company’s operations thus reduces and investors can get back to investing in the scrip.