‘Stability of the rupee will help improve export competitiveness'

Stability of the rupee would improve the competitiveness and profitability of the auto component sector in the global markets, feels Mr Srivats Ram, Managing Director, Wheels India Ltd.

During a recent interaction with Business Line , he said the slow domestic growth over the last year and the muted prospects over the next six months could lead some players to look at the export market.

Excerpts:

What did the significant rupee depreciation in 2011 mean for the auto component industry in terms of input and labour costs and also in terms of revenue boost?

Currently, 12.5 per cent of the auto component industry's turnover comes from exports. The 18 per cent depreciation in the rupee vis-à-vis the dollar would obviously reflect on the toplines of companies as far as the export turnover is concerned. However, the worry is that the depreciation took place rapidly; that many export positions could possibly have been covered at companies, hinting at mark-to-market losses. That said, stability of the rupee at these levels would improve the competitiveness and profitability of the component sector in the international markets.

What kind of impact would rupee depreciation have on your margins, given your increasing export thrust?

Obviously, we are no different than the industry in this respect. However, barring any further drastic depreciation in the rupee, we feel that the performance of the company should be roughly in line with the performance in the first half.

What is your outlook for the rupee in 2012? Where is your comfort factor in terms of rupee settling at a certain level given the impact it could have on your sector?

Giving outlooks on currency in these uncertain times is a dangerous occupation. However, if the rupee does settle at these levels in the medium term, it could help improve the competitiveness of the sector.

What are your own hedging levels and at what rate? What kind of hedging strategy do you follow in such times?

We tend to follow conservative practices or, at least, what seemed to be conservative practices till the sudden depreciation. We will remain conservative as far as exchange rate management is concerned. The strategy regarding hedging is reviewed on a constant basis.

Will the rupee depreciation lead the auto component players to focus on the export market, although the industry players have for long remained largely domestic market-focussed? What is your own strategy on this front?

I do believe that rupee depreciation could improve the competitiveness of our industry in the short term. This could result in a larger share of the low-cost country sourcing of Western manufacturers to Indian companies. The opportunity would be more so for the established players, as it does take one-to-two years to establish oneself with an export customer. However, the slow growth over the last year and the muted prospects over the next six months could lead some players to look at the export markets.

Our strategies, as a company, on exports tend to follow the requirements of customers. In the construction and mining equipment segment, only a quarter of our sales are within the country. The strategy is to continue to grow with and support our customers and is based on a longer-term plan for serving these markets worldwide and are not necessarily based on short-term fluctuations in currency. Similarly, in other industry segments, we would look at servicing MNC customers whom we service in India, predominantly in the non-automotive area.

> dmurali@thehindu.co.in

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