First loss for Hyundai’s India unit

First loss for Hyundai’s India unit
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First Published: Mon, Jun 29 2009. 12 53 AM IST

Most auto makers in India have had a tough time dealing with currency fluctuations in the past year. Sandeep Bhatnagar / Mint
Most auto makers in India have had a tough time dealing with currency fluctuations in the past year. Sandeep Bhatnagar / Mint
Updated: Mon, Jun 29 2009. 11 57 PM IST
New Delhi: Almost a decade after it began operations in India, Hyundai Motor Co.’s Indian subsidiary suffered its first ever annual loss in the year to December, investor filings made by the company in South Korea show.
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The losses have continued this year with its Indian operations, the country’s second largest car maker by units sold, losing money in the first quarter of this calendar year.
Hyundai Motors India Ltd, the local unit, attributes this to currency fluctuations. “On the operating level, our profits were about the same level as a year earlier,” a spokesman for the company said in an email message, quoting his press relations counterparts in Korea. “However, on the non-operating level, when translating our US dollar-denominated debts into the Indian rupee, we incurred a loss as the rupee weakened in the quarter.”
Hyundai, over some eight weeks, declined to answer further queries sent by Mint.
Since the Indian unit is not listed on the stock exchanges, Hyundai is not required to publish its financial results but offers some details of its Indian business, such as profits, as part of its global results. It also files its balance sheet and profit-loss statement with the registrar of companies in India.
In the year to December, the company lost Rs55.9 crore in India. During that time, the Indian rupee depreciated by 11.5% versus the Korean won from 22.6 to 25.2, making imports—the Indian unit imports components such as airbags and anti-lock brakes from Korea—that much more expensive. High raw material prices and discounted car prices are also likely to have taken a toll on the company’s profitability.
Most auto makers in India have had a tough time dealing with currency fluctuations in the past year. Sandeep Bhatnagar / Mint
In 2007, the company reported a profit of Rs510 crore, according to an investor presentation made by Hyundai in Korea. It was not immediately clear if this profit included any one-time gains.
In the first quarter of this year, as the rupee’s decline continued, the losses accelerated to Rs87 crore, another investor presentation by the company shows. The rupee depreciated by 17% against the won in the first quarter of this year.
Filings released by the company’s Korean parent report the losses under a head termed “equity income”. Analysts who have looked at the filings say that as the Indian subsidiary is 100% owned by its Korean parent, a loss would be directly reflected on its statements.
“I assume that the so-called ‘equity income’ is the net income realized in India, which in 2008 and 2009 Q1 is a loss. Given the big increase in net sales, this comes as a surprise,” Julie Boote, an Asian auto analyst at Pali Research, said in an emailed message late in May.
Hyundai, which set up shop in India in 1999, stood above other car makers as it had been able to post a profit right from its first full year of operations. The Santro, Hyundai’s flagship model, had quickly gained acceptance in India, allowing the company to post Rs59.3 crore as profit after tax in 2000, according to a Reuters report in August 2001.
The firm has been profitable every year since then, a senior Hyundai executive said, asking that he stay anonymous.
Analysts point to low utilization levels—a determinant of profitability—for the India plant as a key reason for the loss. As sales crashed, the company in December used just 50% of its installed capacity at its plant in Sriperumbudur near Chennai, Ethan Kim, a Seoul-based Citigroup analyst, said over the phone, quoting company insiders.
That has increased to 83% in May, Kim said, adding that he expects Hyundai’s Indian operations to return to profitability by the second half of this year. “I don’t see any problems on the operations side,” he said. “The worst is probably behind them,” he added.
Both sales volumes and revenues have been growing at a healthy clip for the company in India. In the past year, the company reported a 22.5% increase in cars made for the Indian market. Hyundai, which has made India an export hub for its small cars, nearly doubled the number of cars it shipped to Europe to almost quarter of a million units. Sales revenue was up 82.9% to 3,898 billion Korean won, or Rs15,468 crore, according to company filings.
But rising sales haven’t resulted in increased profits for Hyundai in India. Company filings with the registrar of companies here show net profits have fallen from Rs525 crore to Rs135 crore in the three years ended March 2008.
Most auto makers in India have had a tough time dealing with currency fluctuations in the past year. The rupee has depreciated by 31% against the dollar in the past twelve months. This, coupled with rising input costs, have prompted them to raise prices in the last six months.
Cars with low localization levels are taking a hit. For instnce, the base model price of the Honda Civic, 68% of whose parts are imported, was raised Rs50,100 in April to Rs10.5 lakh.
Maruti Suzuki India Ltd, the country’s largest car maker, lost Rs121 crore in the fourth quarter last fiscal on account of currency fluctuations. In a press conference to announce the firm’s annual results, chief financial Ajay Seth had indicated that the company would consider hedging its currency requirements. Maruti plans to work aggressively towards increasing localization of its models to reduce dependence on imported components, which amounted to 12% of net revenues in the past fiscal.
Car makers have also had to resort to aggressive discounting for sales traction in a sluggish marketplace.
Car sales fell by nearly one-fifth in November and, though they’ve begun to recover, analysts say companies are finding it hard to withdraw the freebies and discounts they had set in place to get sales going.
Hyundai had offered its Santro model for Rs2.99 lakh in December, the same price as 10 years ago when the car was launched. Maruti Suzuki spent Rs62 crore more on discounts in the first quarter compared with the year before, the company had said while announcing its annual results. Again, General Motors Corp.’s small car Spark is selling at a Rs45,000 discount, which the company has found hard to withdraw.
samar.s@livemint.com
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First Published: Mon, Jun 29 2009. 12 53 AM IST