Rising yen to hit Maruti's margins: Nomura

Margins of Maruti Suzuki India (MSI) will be impacted from the third quarter of FY12 onwards due to rising yen, giving further blow to the company that has faced a series of labour unrests at its Manesar plant, according to Nomura Equity Research.

"MSI had a weak first half in FY12, impacted by strikes and weak demand. Given the low base, we expect volume growth to be strong in FY13. However, that may not be enough to offset the impact of 12% appreciation in the Japanese Yen over the last four months, which will impact margins from third quarter of FY12 onwards," Nomura said in a statement.

It said that MSI's targeted localisation over the next three years will compensate for a mere 5% of the appreciation in the yen.

Nomura said that it expected MSIL's volume growth to improve to 15% in 2012-13 but warned against steep competition, increased duty on diesel cars or further increases in fuel prices.

"MSI has lost significant market share due to strikes. As production normalises, we expect the company to gain back market share. This will be backed by the huge waiting list of one lakh units on the Swift.

"...Many of the competing products in the highly competitive 1.2 litre space have failed to maintain volume momentum beyond the first few months of launch," Mira said.

It, however, warned against lower return on MSI's equities.

"While we expect that MSI will continue to maintain a leadership position, we believe that it will come at the cost of lower return of equities. Pricing power to offset increases in costs will be limited," Nomura said.

MSI had reported 59.81% fall in net profit at Rs 240.44 crore for the quarter ended September 30, mainly due to production loss at Manesar because of labour unrest.

Its total income from operations during the second quarter also declined by 14.38% to Rs 7,831.62 crore.

During the quarter, the company's vehicle sales dipped by 19.56% to 2,52,307 units.

This year MSI has witnessed three instances of labour unrest at its Manesar plant, which mainly produces the Swift. In June, a 13-day strike brought production to a standstill.

It was followed by another standoff on August 29 between the management and the workers, and it lasted for 33 days.

Last month, the company again saw its workers going for a 14-day strike that ended last week after the signing of a tripartite agreement between the management, workers and Haryana government representatives.

The board of directors of the company recently approved its third manufacturing facility, which will come up in Gujarat.