After labour unrest, spectre of a rising yen haunts Maruti

While the ghost of labour unrest seems to have been exorcised for the country's largest car-maker, the threat of a rising yen has ensured that the company gets no respite.

“Yen has appreciated by almost 15 per cent in the last three months against rupee. Overall yen payable for Maruti is 30 per cent of revenue value. The yen appreciation will affect their performance as Maruti is unhedged for second half of this fiscal,” informs Mr Basudeb Banerjee, Auto Analyst, Quant Broking.

Ajay Seth, Chief Financial Officer, Maruti Suzuki confirmed that Maruti is poorly hedged against exchange-rate fluctuations for the second half. “We are net importers…. Our royalty payouts have gone up in second quarter. We also have to compensate our vendors in India who import from Japan, against daily exchange-rate movements,” he told Business Line .

“Recent depreciation in rupees vis-a-vis yen has made components imports costlier for the Japanese carmakers by almost 10-13 per cent. Although Maruti Suzuki has high levels of localisation, the profits repatriated to Suzuki Corporation will be less, affecting Suzuki's global profits,” says Mr Rakesh Batra, Auto-Practice leader, Ernst & Young.

Although the company's overall royalty payment came down in the second quarter of current fiscal due to lower net sales, it went up to 6 per cent of revenue as against 5.5 per cent in second quarter last year.

This happened despite 50 per cent hedging of yen payables.

And Other Japanese carmakers too

But it is not just Maruti feeling the heat. Other Japanese car majors have also admitted similar fears.

“A high yen increases the cost of importing components and since we cannot disturb the selling prices too much, many times the company has to absorb the cost,” a Honda Siel Cars India spokesperson told Business Line .

The company, however, declined to divulge details about its risk-hedging position and yen payables for the upcoming quarters.

“Things are not going to shape up well for Toyota in the next six months because we rely on natural hedging instead of active hedging. Our exports equal our imports over a period of time, say six months. We rely on adjustments by the selling company and consequent price corrections. We have a substantial import content in Fortuner and Corolla. Luckily for Innova and Etios, our localisation levels are high,” said Mr Shekar Viswanathan, Deputy Managing Director, Toyota Kirloskar Motors.

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