Weak Rupee hurting Auto-Comp firms

Published: Saturday, Dec 24, 2011, 10:30 IST 
By Yuga Chaudhari | Place: Mumbai | Agency: DNA

Rupee’s slide is impacting the profitability of the auto component industry as well. Auto part manufacturers that are heavily dependent on imports are feeling the heat as their margins start to shrink.

According to component suppliers, the year has been tough so far. The sluggish demand has already affected their order books and with the rupee depreciating, the going has got tougher.

According to the Automobile Components Manufacturers’ Association, the industry imports around 20% components. Also, rising interest rates and labour costs are putting profitability under strain.

“A lot of imports take place for components and materials. It is very critical to the business. With the rupee going down all of a sudden, it affects our cost and profitability. It is also difficult to hedge in an uncertain scenario like this,” said Srivats Ram, managing director, Wheels India Ltd.

Auto companies have already announced prices hikes from January onwards to offset the impact of rising import costs.

Despite the slowdown, the companies will go ahead and effect a hike of 2-3%.

“The import costs have gone up considerably. However, there is no immediate relief from manufacturers’ side. They ask to absorb the pressure as the demand scenario is bleak. We expect our Ebitda margins to get affected by a couple of percentage,” said Harish Sheth, chairman and managing director for Setco Automotive.Setco currently imports not more than 5-10% of its materials.

“Imports take away a huge procurement cost. An impact of 200 basis points on margins is a huge pressure on the company. We are still in a better position as we have a decent amount of exports,” he added.

Passenger vehicle sales declined 0.50% in April-November this year.

“If companies like Maruti Suzuki and M&M have been impacted due to currency fluctuations, then auto ancillary companies will see an impact on their margins as they have limited pricing power,” said Surjit Arora, analyst with Prabhudas Liladher.

“Import cost can be passed on. But impact of rising interest rates and inflation can’t be passed on. Also, there is negative sentiment in the market,” said Jayant Davar, managing director of Sandhar Locking Devices.

(Source: http://www.dnaindia.com/money/report_weak-rupee-hurting-autocomp-firms_1629545)