Bajaj Auto sees better days after Nigeria foreign exchange reform

Pronoy Nath Banerji Hiral Desai | Updated on January 20, 2018

RAKESH K SHARMA, president - International Business, Bajaj Auto

The Nigerian central bank has removed a 16-month peg and allowed local currency naira to be determined by market forces from June 20. Some of the Indian companies that have been exporting their products to Nigeria are closely watching the movements in the foreign exchange market and the possible implications on their exports. Speaking to Bloomberg TV India, Bajaj Auto’s president for International Business Rakesh K Sharma says the free-float move may weaken the naira, but over a period of time it will help the company. He expressed confidence that the company will be able to post results that will be in line with its guidance.

How will the Nigerian policy change impact your company?

Nigeria is a very large market for us. On an average, we export about 40,000 motor cycles and 4,000 three-wheelers per month to Nigeria. Contrary to the perception that the move by the Nigerian central bank is causing jitters to India Inc, it is a very welcome move. The problems started around October or November last year. Although there was an official exchange rate, which was pegged earlier at 150 and then 199 naira to a dollar, in reality there was no foreign exchange available at those rates. So the entire international trade, particularly imports to Nigeria, was being funded through sourcing from the parallel market. And the parallel market had already slid down to 280-350 naira to a dollar. So Bajaj Auto has been living with this issue since December. And we had a difficult time.

But the markets have got adjusted to the new normal of retail pricing. So, in our opinion, this is a very welcome step because it is going to close the gap between the official and the parallel Fx market and remove uncertainties. It is going to set up the stage in medium term to enable investors to bring in dollars to Nigeria. As a result of which, foreign exchange will be easily available. So we are looking at a much better prospect in the next six months. We feel the worst is behind us.

Will you benefit after the narrowing of the naira rates in the official and parallel markets?

Foremost, I think the exchange rate is going to probably cross 300 naira to a dollar. That is the general consensus of the bankers and various stake holders over there. As far as our retail pricing is concerned, we were already operating at that level of the exchange rate because that is what the parallel market was operating on. Business has come down as the retail prices have increased. And that has impacted demand and our sales in Nigeria over the last few months. So that impact is already being borne by us.

Over and above this, there is always the uncertainty of managing the supply chain under the volatile circumstances of the foreign exchange. While I do not expect the naira to strengthen, I also do not expect the price architecture to change. But I definitely expect a better view and transparency in terms of the availability of the dollars and that helps any company plan its business better.

Will we see a tweak in your sales guidance after the naira move?

For the international business, we are staying with the guidance. The environment is pretty restless in many countries. I would not go ahead and say we will do better or worse. I am pretty confident we will be able to come up with the numbers we have guided on.

Published on June 17, 2016

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