Weak rupee weighs on BMW India margins; further price hikes on the cards

BMW Group India said every Re 1 depreciation in the rupee against the euro trims its profit margin by about 1 per cent, prompting the company to consider further price increases

BMW Group India said a sharp depreciation of the rupee against the euro is emerging as a significant challenge, with the luxury carmaker estimating that every Re 1 decline in the Indian currency against the euro reduces its profit margin by around 1 per cent, even as robust demand helped it post record first-half sales.

 

"With every Re 1 depreciation against the euro, we get impacted by 1 per cent in our profit margin. Since last January till now, the overall deterioration is about Rs 18, which means an 18 per cent impact on our profit margins," Hardeep Singh Brar, president and chief executive officer (CEO), BMW Group India, told Business Standard.

 

The company has only partially passed on the higher costs to customers. BMW raised prices by 5-6 per cent last year and by another 4-5 per cent this year, but Brar said the increase falls well short of the impact of the weakening rupee.

 

"There is still a lot of gap between how much the currency has deteriorated versus what price hike we have taken," he said, adding that the company would consider further price increases in the coming months.

 

Luxury carmakers remain particularly exposed to currency fluctuations because a significant share of components and completely built-up units (CBUs) are imported and invoiced in euros. While BMW assembles most of the models it sells in India at its Chennai plant, imported components continue to account for a sizeable portion of production costs.

 

Despite the currency headwinds, BMW Group India reported its highest-ever first-half sales, delivering 9,075 cars between January and June, up 17 per cent year-on-year (Y-o-Y). Second-quarter deliveries also rose 17 per cent to 4,507 units.

 

Growth continued to be driven by electric vehicles (EVs), long-wheelbase models and sports activity vehicles (SAVs). EV deliveries surged 78 per cent Y-o-Y to 2,359 units, with battery electric vehicles (BEVs) accounting for 26 per cent of the company's total sales during the first six months of the year.

 

Long-wheelbase models recorded 24 per cent growth to 4,428 units and contributed 52 per cent of total volumes, reflecting rising demand for chauffeur-driven luxury vehicles. Sales of SAVs climbed 35 per cent to 5,926 units, accounting for nearly two-thirds of overall deliveries.

 

Brar said the company remains optimistic about demand in the second half of the year despite global uncertainties, supported by a strong product pipeline. BMW launched 11 products in the first half and plans to introduce 14 more models across its BMW, MINI and Motorrad brands before the end of the year.

 

While demand remains resilient, Brar said exchange rate volatility continues to be the biggest pressure point for profitability. Any further weakening of the rupee could widen the gap between rising input costs and vehicle prices, making additional price revisions increasingly difficult to avoid even as the company seeks to maintain its growth momentum in India's expanding luxury vehicle market.