Maruti mulls options to counter yen impact on margins

Maruti mulls options to counter yen impact on margins

New Delhi: The country’s largest car maker Maruti Suzuki India on Tuesday said it will consider taking different measures after April to protect its margins due to fluctuation of Japanese Yen, post the devastating earthquake and tsunami.

“For this month, we are completely protected. In fact, we are covered till April. Beyond that if Yen continues to appreciate, then we will have to take a call to counter it," Maruti Suzuki India (MSI) chief financial officer Ajay Seth told PTI.

He said the company’s margins are affected whenever the yen appreciates, while it is beneficial if it depreciates.

After the natural disaster that struck the island nation on 11 March, the Japanese currency is quoted at about ¥81 against a US dollar compared to that of about ¥83 earlier, Seth added.

He said there is strong volatility going on at present, with yen appreciating as much as to ¥76 against a dollar recently.

While Seth did not elaborate on how MSI would counter the Yen fluctuation, market analysts pointed out that currency hedging is a strong possibility.

“Usually, Maruti hedges yen against the euro instead of rupee to mitigate the impact," an analyst with a leading brokerage firm, who asked not to be identified, said.

On the component sourcing from Japan, Seth said: “Of our total raw material procurement, about 25 per cent are imported."

Out of those imported parts, about 80% are purchased in yen, he added.

During the October-December period last year, MSI spent 6,959.03 crore in consumption of raw materials and components. It also paid 460 crore as royalty in the quarter to its parent company Suzuki, which is about 5.5% of MSI’s total sales.

When asked about the impact of Japan’s natural disaster on MSI’s production, Seth said it will be unaffected for some time till next month as the company has enough inventory of components.

“Besides the stock at the plants, we will be getting some supplies, which will reach to us from Japan that started sailing just before the earthquake," he added.

Last week, the company had said it was assessing the possible impact of the natural calamity on its components import from Japan.

Earlier, MSI had cancelled the celebrations for rolling out its 1,00,00,000th car in view of the catastrophe.

Shares of MSI were trading at 1,170.05 on the Bombay Stock Exchange during late afternoon trade, up 3.42% from its previous close.