Appreciation in yen, yuan hit auto majors bottomlines

Written by Yogima Seth | New Delhi, Aug 29 | Updated: Aug 30 2008, 08:28am hrs
Appreciation of the yen and the yuan, in addition to rising input costs, have squeezed margins of leading auto majors like Maruti Suzuki India (MSIL) and Hero Electric that have a varying degree of import.

By the end of the first quarter, the yen had appreciated by 14% against the rupee, thereby increasing Maruti's import bill. Also, the domestic currency had depreciated by 5% against the dollar which in turn resulted in higher export realisation for Maruti.

Consequently, its net adverse impact on profitability was Rs 74.3 crore for the first quarter ended June 30.

Different models of Maruti have 85-90% localisation while the rest is imported from Japan. Appreciation of the yuan has hit bottom lines, said a company official.

Same is the case with Hero Electric. The company, which has recently forayed into electric two-wheelers, largely imports motors and batteries and, to a small extent, even plastics from China. As such appreciation of the yuan has inflated the company's import bill.

The Chinese currency has gone up by 10% since last year, resulting in over 10% increase in overall cost of import and a squeeze in our profitability margins, said Naveen Munjal, managing director, Hero electric. He added that the company is working on developing its own motors and batteries so that the import content can be brought down from 60% now to less than 20% by 2009-10.