Rupee Aids Auto Parts Export Push as Sales Dip: Corporate India
Indian auto parts makers are looking at the rupee’s 13 percent slide against the dollar this year to help boost exports and counter a nine-month slump in car sales at home.
Rane Holdings Ltd. (RHL), a vendor to the local factories of Ford Motor Co. and Hyundai Motor Co., plans to raise the share of exports to 25 percent of its revenue from 18 percent, Director Harish Lakshman said in an interview. Asahi India Glass Ltd. (AISG), which supplies to the Indian unit of Suzuki Motor Corp. (7269), is targeting a threefold increase in the share of its overseas shipments, Managing Director Sanjay Labroo said.
“A priority would be to increase exports,” said Lakshman, who also heads the Automotive Component Manufacturers Association of India. “The industry is a net importer so the rupee depreciation affects the industry, especially at a time when there is flat to negative growth.”
The plunge in the rupee, the second-worst performing currency in Asia this year, may be a silver lining for component manufacturers as carmakers brace for the second straight annual sales decline in Asia’s third-biggest market. Discounts offered by companies including Tata Motors Ltd. (TTMT) and General Motors Co. are failing to lure customers to showrooms as the slowest pace of growth in a decade in the $1.8 trillion economy and rising prices of gasoline and diesel crimp demand.
In contrast, auto sales in the U.S., the world’s No. 2 market, are poised for a fifth straight year of growth to 16.1 million cars and light trucks in 2014, according to a survey by Bloomberg News.
“There’s a wonderful opportunity at the moment for Indian makers to be more fully engaged in the global supply chain of components,” Jonathan Schiessl, head of Asia Pacific at Ashburton Ltd., which manages $5 billion of assets, said in a phone interview. “Obviously, the depreciation of the rupee makes that more attractive. In the short term, the outlook is cloudy, but in the medium to long term, it is rosy.”
The Society of Indian Automobile Manufacturers this month forecast local deliveries of passenger vehicles, including cars, SUVs and vans, may decline this year for the first time since the 12 months through March 2002, after sales of passenger cars fell in the year ended March 31, 2013.
Maruti Suzuki India Ltd. (MSIL), India’s biggest carmaker, doesn’t expect demand to pick up because of the economic slowdown, Chairman R.C. Bhargava said Sept. 3. General Motors (GM) expects the slump to continue until after a new government is in place post elections due by May, P. Balendran, GM’s vice president for corporate affairs at its local unit, said the next day.
India’s economy expanded 5 percent last fiscal year, the slowest pace since 2003, as investment fell and consumer spending in the nation of 1.2 billion people moderated. Gross domestic product rose 4.4 percent last quarter.
Rane Holdings, the holding company for a group that makes brake linings, hydraulic power steering systems and engine valves, reported its first quarterly loss since 2009 in three months through June, while Asahi India Glass posted its eighth consecutive quarterly loss. Profit at Bharat Forge Ltd. (BHFC), India’s biggest forging company, has declined for four straight quarters.
“Companies need to reduce costs and bring down their breakevens,” said Babasaheb Kalyani, managing director of Bharat Forge. “With a devaluation of the rupee, imports get expensive and for Indian manufacturers this creates a huge opportunity.”
Bharat Forge shares have gained 2.8 percent this year in Mumbai, compared with a 1.7 percent increase in the benchmark S&P BSE Sensex (SENSEX) index, according to data compiled by Bloomberg. Asahi India Glass has slumped 16 percent this year, while Rane Holdings has slid 27 percent.
Some manufacturers expect the best monsoon rainfall in two decades to boost farm output, helping increase demand for vehicles in India’s rural areas.
“The rural markets in India are doing well,” said Sunjay Kapur, managing director of Sona Koyo Steering Systems Ltd. (SONA), in an interview in New Delhi. “We are quite bullish on the monsoon and expect demand for tractors and two wheelers to increase.”
Motherson Sumi Systems Ltd. (MSS), which supplies wiring harnesses and rear view mirrors to automakers including Bayerische Motoren Werke AG, says it expects exports to increase from India, even as the company expands its operations in North America and China, the world’s largest auto market. The partmaker’s shares have risen 9 percent this year.
“If the rupee remains at these levels, an increase in exports will naturally happen,” Chief Operating Officer Pankaj Mital said in an interview. “Three years ago, everyone was worried about rupee appreciation and how it would erode advantages. Today, it’s gone the other way.”
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