CMP: Rs 1,779.20
Target: Rs 1,360
Industrial relations at Hero MotoCorp (HMC) have worsened following inconclusive wage talks at the Gurgaon plant, indicate media reports.
Workers at the plant, along with a few others from the Dharuhera plant, have decided to go slow on production starting January 23.
Workers’ union at the Gurgaon plant is demanding a wage hike of Rs 15,000-18,000 a r month (on a base of Rs 32,000-38,000) over three years against management’s Rs 7,000 offer.
HMC’s Gurgaon plant produced about 10.96 lakh vehicles (run rate of 6,500-7,000 a day) in FY12 against about 60.70 lakh vehicles of total production.
However, we do not see a material impact of a go slow/ strike lasting less than two-three weeks, as inventory in the system is fairly high (about 4 weeks at dealers).
A one-month strike may impact FY13E core EPS by 2 per cent (assuming loss of one week sales).
While a planned go slow may not impact sales in the near term, wage hike in line with union demands can impact FY14E EBITDA margin by about 15 bps. We expect HMC’s EBITDA margin in FY14 to continue to remain under pressure given the intense competition in the domestic motorcycle segment.
This, along with wage revisions, will continue to impact margin.
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