Maruti’s Vendors to Face the Heat of Production Cuts Essay

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Maruti’s vendors to face the heat of production cuts Maruti vendors are unlikely to switch loyalties despite the adversities as it is the undisputed market leader (Mint dated 2nd August 2012) The lockout at Maruti Suzuki India Ltd’s Manesar factory has made component suppliers nervous. With no solution in sight nearly a fortnight after the lockout was declared, Maruti’s suppliers concede that it will affect their production schedules. This, in turn, will hit their revenue streams, cash accruals and profitability. The worst hit will be tier-I suppliers to Maruti, especially those with greater dependence on its Manesar facility. The unit, which makes models such as the Swift, DZire, SX4 and A-star, accounts for around one-third of the car maker’s total production volumes. A report by rating agency Icra Ltd, which puts 14 vendors on “rating watch with developing implications”, explains that the overall average realization of components related to these four models is higher than those of the components that go into the models produced at Maruti’s Gurgaon (Haryana) plant. A parallel can be found in the period of labour unrest that disrupted about 72 days of production in 2011 and translated into a potential sales loss of 40,000 vehicles in fiscal 2012. At the time, the effect on large vendors was clearly mirrored in their profit and loss account. For instance, Jay Bharat Maruti Ltd, which is among Maruti’s largest component joint ventures, posted a 7.5% and an 11.5% year-on-year dip in revenue in the September and December quarters, respectively. Net profit nosedived 86% in each of these quarters. Sona Koyo Steering Systems Ltd, too, saw a contraction in revenue and profit around the period. Other listed entities affected include Lumax Industries Ltd, Subros Ltd and Halonix Ltd (formerly called Phoenix Lamps Ltd). Of course, high raw material costs and the

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