Falling Re may raise Maruti's parts import cost

A drop in value of the rupee against the dollar and other major currencies may hurt Maruti Suzuki, the country's biggest producer of passenger cars, as it is slated to import as much as Rs 2,000 crore of auto parts in this financial year.

"This year (the rupee's depreciation) might impact us because we are a net importer. Our imports will be about Rs 2,000 crore this year,'' said Ajay Seth, chief general manager of finance, Maruti Suzuki, in an interview to Bloomberg.

The rupee fell to a five-year low yesterday to touch Rs 47.15 to a dollar in the intraday trade. The currency market was shut today for the half-yearly book closure of local banks.

The impact of a falling rupee may still be cushioned as Maruti is boosting exports of its vehicles. The company, which is also the second largest exporter of passenger cars from India, has witnessed growth of 20 per cent in its exports to 23,917 units in the past five months.

"Next year, it will be neutral for us with the A-Star (small car) exports happening," Seth said. Maruti plans to start exports of its latest small car, A-Star, after its launch in November this year. Maruti's exports are scheduled for the European region.

Analysts expect the company's margin to contract in the financial year ending March 2009 because of a rising cost of raw materials and lower sales. During the first five months of the current financial year, the company reported growth of just under 5 per cent with sales of 2.87 lakh units in the April-August period.

In contrast, most local car-makers, including South Korea's Hyundai Motor India and Mumbai-based Tata Motors, reported higher sales than Maruti's as they launched new products and sharper marketing techniques, analysts said.

According to a Motilal Oswal report, Maruti's sales are expected to grow by 3.8 per cent in the three months ending September 30 compared with those in the same period of the previous year. The volume drop is most evident in the small car segment, where high interest rates have dented sales.

The expected drop in volume will keep the top line flat, while net profit is expected to slide, added the report. Small cars, which constituted 80 per cent of Maruti's total sales last year, have growth by just 3 per cent this year.