Analysts cut Maruti forecast after weak Q1, Manesar strife
Maruti Suzuki shares fell on Monday after it disappointed the street with a 23% drop in first quarter profit, despite strong revenue growth and analysts have now started cutting earnings forecast on the country's largest passenger car maker following continued uncertainties related to the labour problems at its Manesar plant.
July 30, 2012 / 15:02 IST
Moneycontrol Bureau
Maruti Suzuki shares fell on Monday after it disappointed the street with a 23% drop in first quarter profit, despite strong revenue growth, and analysts have now started cutting earnings forecast on the country's largest passenger car maker following continued uncertainties related to the labour problems at its Manesar plant.Maruti reported a net profit of Rs 424 crore in April-June, compared with Rs
549 crore a year ago, even as net sales rose 28% to Rs 10,529 crore, as the sharp depreciation in rupee, especially against the Japanese Yen, pushed up import costs."Q2, in our view, will be the worst quarter for the company as the full effect of adverse currency movement in Q1 will get reflected. Further, the lockout at the Manesar plant will impact operating leverage and profitability in Q2," said Gaurant Dadwal of Nirmal Bang.The brokerage has cut its earnings estimates on Maruti Suzuki by 7.6% for FY13 and 3.4% for FY14 and volume forecast for FY13 by 2.4% to 1.24 million units.Maruti Suzuki announced an indefinite lock-out at its Manesar plant on July 18 after labour violence left a general manager dead and several other executives injured.Umesh Karne and Manashwi Banerjee of Brics Securities say the company has already lost 15,000 units in sales volume since the lockout and Rs 750 crore in revenue.The Swift hatchback and DZire compact sedan, amongst the top selling cars for Maruti, are made at the Manesar plant. Last year too labour disputes led to the closure of the plant, which hurt production and market share as some customers opted for similar cars made by Maruti's competitors. Analysts warn of a similar impact if the latest issues are not resolved soon."We believe Maruti will loose market share in the short term, but if it decides to restart the plant within the next 10-15 days, it is unlikely to loose customers to competitors. But if the lockout extends beyond a month or more, then its customers are likely to shift. We may revise our estimates if lockout extends for more than a month," said the Brics analysts.Brics and Nirmal Bang have retained their "buy" rating on the stock. Edelweiss Securities also maintained its "buy" rating on Maruti Suzuki, although it cut EPS (earnings per share) forecast for FY13 and FY14 by 24% and 9% respectively."Despite the near term headwinds (which have been captured by the recent stock correction), peaking of competition, interest rate and fall in commodity prices globally augur well for Maruti Suzuki's long term demand and profitability outlook," said Edelweiss analysts Sachin Gupta and Ashish Poddar.KimEng Securities also expects downward revision in Maruti's EPS due to Manesar problems, which is likely to curtail Q2 volumes if the problem prolongs beyond this month.Maruti Suzuki shares were down 0.3% at Rs 1,110.30 on NSE in noon trade. The stock had slipped over 2.7% at Rs 1,082.65 earlier in the session. The shares are down 7.5% in the last two weeks.Also Read: Maruti may hike production of diesel vehicles at GurgaonNachiket Kelkar
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