Suzuki and Indus Motor earnings expected to fall

Rupee depreciation and increase in used car age limit cited as reasons.

KARACHI:

Top two car assemblers, Pak Suzuki and Indus Motor, will witness a drop in earnings in fiscal 2011 due to rupee depreciation, hike in steel prices and the government’s decision to increase age limit for used car imports to five years.

Topline Securities estimates that Indus Motor’s earnings will fall by 7-26 per cent in fiscal 2011-2013 while Pak Suzuki Motor Company is expected to see a drop of 25-44 per cent in the same period.

The Japanese yen has started gaining upward momentum in anticipation that a huge amount of yen would be required for reconstruction activities following the Japanese earthquake. Within a week of calamity, the yen appreciated by almost four per cent against the US dollar, hitting an all-time high.

The same was also witnessed in the rupee to yen parity as the yen appreciated by almost two per cent from the date of devastation. With further appreciation of the yen expected, cost pressures would continue to hurt local assemblers, said Topline Securities analyst Furqan Punjani in a research note.

Used car risk mitigated
till June

The devastation in Japan has added cost pressure for local assemblers but it also has mitigated the risk posed by used car imports, said Punjani.

Used car prices are expected to increase by almost 10 to 15 per cent due to supply constraints in Japan and appreciation of the yen against the rupee.

Thus, the risk of cheaper imported cars seems to be mitigated for local assemblers, at least for this financial year, added Punjani.

A new risk emerging

Several Japanese automakers have extended their production shutdowns into third week after the devastation. Suzuki started production at three of its plants earlier this week but component unavailability forced the plants to shut down again. Toyota has already extended production shutdown to early April.

The plant closure in Japan would also spark concerns of component unavailability for domestic assemblers, said Punjani. Although domestic car assemblers maintain inventory of completely knocked down (CKD) kits for almost two months, they will start feeling the heat by the end of April if supply is not restored, added Punjani.

Published in The Express Tribune, March 31^st, 2011.