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Carmakers such as Skoda, Volkswagen, General Motors, Honda and Toyota, who have a bigger stake in the mid-size sedan and luxury vehicle segments are likely to lose the most from the plunging rupee, which touched record lows on Tuesday.
Since such companies have high import content, they will face increased pressure on their margins. Companies with a strong small car portfolio, however, will feel less hurt because the localisation in that segment is at least 80-90 per cent.
High local content is possible as the volumes are large (represents 70 per cent of all car sales) and such cars have relatively less complicated parts, analysts said.
“The midsize and premium car segments will be most impacted. The best thing is to localise as soon as possible,” said Mr Abdul Majeed, Auto Practice Leader at PwC.
“Most of the car companies here are importing some parts – overall 20-30 per cent is import content. Those who export have a natural hedge,” he added.
After touching the all-time low of Rs 52.73 against the dollar on Tuesday, the rupee on Wednesday strengthened for the first time in eight days to Rs 52.10.
Mr P. Balendran, Vice-President at General Motors India (GMI), said that the main impact for the company will be because of high import content – the engines for the Aveo, Optra and Cruze are imported and then assembled in India.
Other carmakers with a large portfolio of premium cars include Honda (Civic, Accord), Skoda (Laura, Superb), Volkswagen (Jetta, Passat).
However, companies which also have significant exports from India, such as Hyundai, Nissan, Maruti Suzuki and Ford, will earn more and be able to offset the increased import costs.
“The depreciation has been very swift, 10-15 per cent over three months. We haven't seen any intervention by the RBI and expect the volatility to continue for 2-3 months. We have done some small hedges on the rupee, we'll be gradually doing more,” Mr Ajay Seth, Maruti Suzuki's CFO said, while adding that the forex impact on the margins this quarter will be lower than the last as the company has hedged itself.
Foreign loans
Companies which have high proportion of foreign borrowings, will also find repayment more expensive and could look to restructure these with funds raised domestically.
“The rupee movement mostly affects our around $250 million worth of long-term loans, apart from the imports. We will see how it moves and will not take any immediate decisions. It is not possible to cover this higher cost totally through our exports,” said Mr R. Sethuraman, Vice-President (Finance and Corporate Affairs) at Hyundai Motor India.
The company exports around 40 per cent of its production from its Chennai plant.
Increase prices
Few players such as General Motors and Toyota Kirloskar could also soon look to pass on the higher costs by increasing models prices.
“We were already planning to increase prices in January, but we may pre-pone that to an earlier date,” said GMI's Mr Balendran.
However, Mr Ravi Sud, CFO, Hero MotoCorp, said that it will be tough to increase prices when sales are already slow.
“We should be ready for margin compression, because companies will not be able to pass on the higher cost. At Hero Moto, we have negligible imports – few parts from Honda and cast wheels from China,” he said.
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