Maruti Suzuki is less prone to yen volatility now…

Interesting interview by Maruti Suzuki Chairman RC Bhargava.

He says how the company has reduced the impact of yen volatility on its balance sheet. No policy intervention needed:

How will the yen appreciation impact the profitability of Maruti Suzuki?

The yen has always been a very volatile currency. We had substantial yen imports in terms of the inner parts that vendors require. Over the years, we have localised those parts. As a result the impact of yen volatility has reduced.

Not so long ago, the yen went below 100 to a dollar. After Japanese Prime Minister Shinzo Abe started his programmes, the yen went up to over 124 to a dollar. And now it has come back to 104, but it is still higher than what it used to be even a couple years ago.

We are used to this. But at this moment, the impact of the yen on us will be much less than what it used to be two years ago as we now have lower import content.

Also, from Brezza onwards, all the royalties are in rupees. For any new model introduced alongside Brezza and thereafter, the royalties will be in rupees. Therefore, when we convert the yen, there is no impact of its volatility in terms of the amount of rupees we have to pay. The third thing is, we have started exporting Baleno to Japan, and that provides a partial natural hedge to imports from Japan.

Your exposure to direct imports has reduced over the years. What percentage of your sales is direct imports and how much of it is yen-denominated currently?

I’m not in a position to give you the exact number. All I can say is that we have newer models, which have newer technology and higher import content.

The import content for older models, which we had a chance to localise, becomes lower. So if I look at import content levels, let’s say five years ago, on the inner parts, those imports today are at least 10 percentage points lower.

It used to be 25-26 per cent. But this has increased in the newer models, in which the technology is new and we have not been able to localise.

We hardly know much about such micro efforts to reduce macro exposures. Much attention remains on Dollar markets and how policymakers try and reduce volatility in the same. Most of the time such interventions backfire and have unintended consequences.

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