HMCL reaches on a wage settlement agreement with Gurgaon union - Angel Broking

According to media reports, Hero MotoCorp (HMCL) has finally arrived at a wage settlement agreement with the Gurgaon union. While the entire terms of the agreement are not fully disclosed, according to media sources, the company has agreed to hike wages of permanent workers by Rs. 9,000 a month over a three year period taking effect retrospectively from August 2012. According to the agreement, in the first year, the workers will get a hike of Rs. 5,400 and the remaining Rs. 3,600 will to be divided equally over the next two years. Besides the wage hikes, the management has also agreed to offer other benefits and bonuses to the workers.

The workers at the Gurgaon unit have been agitating for higher wages in a peaceful manner since the past few months. As a mark of protest, the workers have been sporting black arm-bands at the workplace and had also stopped taking tea and snacks offered by the company. The company currently employs around 1,200 permanent workers and 4,000 contract workers at its Gurgaon facility. The Gurgaon facility accounts for ~30% of HMCL's total annual installed capacity of ~7mn units.

We see this as a positive development for HMCL as amicable solution to the wage settlement dispute removes the uncertainty associated with the disruption of operations at the plant. Further the impact of the wage settlement agreement on company's profitability is unlikely to be material as we expect a marginal impact of upto 15bp on FY2014/15 operating margins. We retain our FY2014/15E earnings estimates for the company. At Rs. 1,649, the stock is trading at 11.8x FY2015 earnings. We maintain our Accumulate rating on the stock with a target price of Rs. 1,819.

Source : Equity Bulls

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