By moving the timeline of its bi-annual maintenance by three weeks from the scheduled June 27th to July 2nd to June 6th to 11th so that it’s supplier Subros (Maruti Suzuki’s major air-conditioners or AC kits provider) can supply components from its other production facilities, not only has this helped its component supplier Subros cut down the potential losses but also helped Maruti which would have had a higher production loss due to non-availability of parts (Company avoided the worst of the damage with by advancing the maintenance shutdown).
This is how the stock reacted to the sales numbers today. The stock closed at Rs. 4,165.40/- (down about 0.5%).
While this has resulted in production loss of an estimated 30,000 units (daily production stands at estimated 10,000 units in two shifts), it has also allowed both the company and its vendors to clear out the inventory while its component suppliers stock up to combat the increased production post maintenance. (It is only during festivals and events such as better monsoons, pay commission hikes that sales of vehicles pickup resulting in June being an off season).
Maruti is hopeful of achieving a 100% production target which will take a couple of months. This wouldn’t have come at a time when the company is facing capacity issues (even with addition of temporary lines) and the waiting period of Baleno and Brezza which was 4-6 months does not seem to come down until the next festival season.
Plans of ramping up the production of Brezza to 10,000 units a month from July has been put in motion with the current outstanding of over 45,000 bookings of Baleno and Brezza each.
This would also be an uphill task for close to 250 (company) vendors in the supply chain as they also need to ramp up their production, investments and capacities until the Gujarat plant start production in January, 2017.
With the 7th Pay commission hike, the company expects a 25% jump in sales towards government employees. Currently Government employees contribute approximately 17% to sales volume for Maruti.
While the June sales numbers from a standalone basis does not look too great, considering all the above actions that have taken place – the quarterly numbers show that this period has not been a bad write off.
The June unit exports were cut down by at least 25% to accommodate for the increased demand in the domestic market (quarter ending Jun-16 is estimated to be the worst growth in exports both in terms of revenue generation 1,104 Cr. and volume of 26,103 units).
Here is the Maruti Ignis which is being planned for launch during the festive season (more here):
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