Strong yen drags down Maruti Suzuki’s stock to five-week low

Strong yen drags down Maruti Suzuki’s stock to five-week low

Mumbai: Shares of Maruti Suzuki India Ltd, the country’s largest car maker and a unit of Japan’s Suzuki Motor Corp., plunged 4.4% on Thursday to a five-week low as the Japanese yen appreciated against the rupee and other currencies.

At least 20% of Maruti’s imports are yen-denominated and strengthening of the currency against the rupee may mean that the Indian unit may have to pay more for purchasing parts from Japan. Maruti’s stock price declined to Rs1,169.25 on the Bombay Stock Exchange, compared with the benchmark Sensex’s 1.1% drop.

The yen has gained 4.8% against the rupee since 11 March, when an earthquake and a tsunami hit Japan, according to calculations made based on the Reserve Bank of India’s reference rate. On Thursday, the rupee closed at Rs57.14 per 100 yen compared with Rs55.92 on Wednesday.

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The extent of the currency impact on Maruti’s profitability would depend on how long the appreciation continues, said Mahantesh Sabarad, an analyst at Fortune Equity Brokers (Ind) Ltd. Maruti buys yen worth Rs3,600 crore a year to import parts and pay royalty to Suzuki Motor, he said.

In the December quarter, Maruti paid Suzuki a royalty of 5.2% of its net sales, according to a Bloomberg report in January.

Sabarad said theoretically Maruti buys yen worth Rs10 crore a day on an average. Hence, a 5% appreciation against the rupee in the past six days would mean a potential loss of Rs2-3 crore a week. But he added that this would depend on a combination of factors such as treasury actions like hedging taken by the company and the price points at which it buys the yen.

Ajay Seth, Maruti’s chief financial officer, said the yen’s strengthening has not had any impact on the company’s profitability so far as it had hedged the currency in the beginning of the current quarter. “We hedged it at the levels which is much better than the current one," Seth said. “It can be a concern if it continues to be strong."

Maruti imports around 20% of its parts from Japan and has adequate supply of these components for about three months, Seth said in an interview with Bloomberg News.

In an earnings call on 29 January, after announcing its third-quarter results, he had said the company’s strategy for this year would be to keep the yen exposure open because it believed the currency could either improve or depreciate against the dollar.

Kiran Deshmukh, chief operating officer at Sona Koyo Steering Systems Ltd, which imports certain components from Japan to make steering, suspension and other parts for car makers including Maruti, said the company has not faced any problem as the southern region of the island nation, which houses many of the factories that supply the parts, was not affected by the calamity.

The appreciation of the yen against the rupee may also affect other car and bike makers in India that have Japanese parents such as Honda Siel Cars India Ltd, Toyota Kirloskar Motors Ltd, India Yamaha Motor Pvt. Ltd and Suzuki Motorcycle India Pvt. Ltd.

Ajay Shethiya, analyst at Centrum Broking Ltd, said the quarter-on-quarter impact on Maruti’s profitability on account of a stronger yen would be limited. Higher royalty costs and an unfavourable yen and euro had singed Maruti’s third-quarter profits as well.

Graphic by Paras Jain/Mint