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India Equity Research Reports, IPO and Stock News
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● With the recent appreciation of the US$ against most global
currencies, we look at the impact on auto companies.
● Since Maruti has hedged its FX exposure only until 1H FY12, the
continued strength of JPY (20% of net sales) is a big concern.
While the rupee depreciation vs the US$ partially mitigates the
impact, if JPY stays at current levels, its margins could be shaved
by 150 bp, resulting in EPS reduction of Rs17 (~20%).
● The US$ appreciation against GBP helps Tata Motors’ JLR
operations, where 50% of revenues are US$-denominated,
significantly. This was a key factor for margin expansion in 1H
FY11. Since >50% of its FY12 exposure is hedged, the benefit
should be visible largely in FY13. Assuming no hedges for FY13,
its net fair value increases Rs18/share at current FX levels.
● While exports constitute ~30% of Bajaj’s revenue, it would be least
affected as it is almost fully hedged. However, with Bajaj planning to
hike prices on exports due to reduction in export benefits, importers
now have to face the additional brunt of currency depreciation. (The
Nigerian Niara has fallen by ~3% vs US$.)
Maruti’s margins: ~150 bp shaved at current FX levels
Maruti’s FX exposure is principally to JPY and US$. Inclusive of
royalty payments to Suzuki and its vendors purchases, the JPYdenominated
imports form 20% of its sales. Its exports, which are
typically US$-denominated form ~10% of net sales. The company
hedged only the JPY/US$ leg of its JPY/Rs exposure and keeps the
US$/Rs leg open. The exports leg acts as a natural hedge for the
US$/Rs exposure. While the company was hedged at 84 JPY/US$ for
1H, even this leg is open in 2H. While increased export realisations on
account of rupee depreciation provide a relief, current level of JPY/Rs
is a big worry, negatively impacting EPS to the tune of ~20%. The JPY
has appreciated 20% from the assumed rate of 0.56 Rs/JPY.
GBP depreciation a pleasant surprise for Tata Motors
For the domestic business, exports are negligible as a percentage of
total revenues; however, currency has major impact on JLR. JLR
derives ~50% of its revenues from US$. Also netting Euro exports,
~25% of its imports are Euro-denominated. Given the recent 5%
depreciation of the GBP against US$ (GBP vs Euro has stayed flat),
its realisations would improve ~250 bp. Since >50% of its FY12
exposure is hedged, the benefit would be visible largely in FY13.
Assuming no hedges for FY13, its fair value increases by Rs20/share
at current FX levels. The company also 1.4 bn US$-denominated debt
and 500 mn GBP-denominated debt. The rupee depreciation would
increase the effective debt value, resulting in reduction of Rs2/share,
thus resulting in a net impact of Rs18/share
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
● With the recent appreciation of the US$ against most global
currencies, we look at the impact on auto companies.
● Since Maruti has hedged its FX exposure only until 1H FY12, the
continued strength of JPY (20% of net sales) is a big concern.
While the rupee depreciation vs the US$ partially mitigates the
impact, if JPY stays at current levels, its margins could be shaved
by 150 bp, resulting in EPS reduction of Rs17 (~20%).
● The US$ appreciation against GBP helps Tata Motors’ JLR
operations, where 50% of revenues are US$-denominated,
significantly. This was a key factor for margin expansion in 1H
FY11. Since >50% of its FY12 exposure is hedged, the benefit
should be visible largely in FY13. Assuming no hedges for FY13,
its net fair value increases Rs18/share at current FX levels.
● While exports constitute ~30% of Bajaj’s revenue, it would be least
affected as it is almost fully hedged. However, with Bajaj planning to
hike prices on exports due to reduction in export benefits, importers
now have to face the additional brunt of currency depreciation. (The
Nigerian Niara has fallen by ~3% vs US$.)
Maruti’s margins: ~150 bp shaved at current FX levels
Maruti’s FX exposure is principally to JPY and US$. Inclusive of
royalty payments to Suzuki and its vendors purchases, the JPYdenominated
imports form 20% of its sales. Its exports, which are
typically US$-denominated form ~10% of net sales. The company
hedged only the JPY/US$ leg of its JPY/Rs exposure and keeps the
US$/Rs leg open. The exports leg acts as a natural hedge for the
US$/Rs exposure. While the company was hedged at 84 JPY/US$ for
1H, even this leg is open in 2H. While increased export realisations on
account of rupee depreciation provide a relief, current level of JPY/Rs
is a big worry, negatively impacting EPS to the tune of ~20%. The JPY
has appreciated 20% from the assumed rate of 0.56 Rs/JPY.
GBP depreciation a pleasant surprise for Tata Motors
For the domestic business, exports are negligible as a percentage of
total revenues; however, currency has major impact on JLR. JLR
derives ~50% of its revenues from US$. Also netting Euro exports,
~25% of its imports are Euro-denominated. Given the recent 5%
depreciation of the GBP against US$ (GBP vs Euro has stayed flat),
its realisations would improve ~250 bp. Since >50% of its FY12
exposure is hedged, the benefit would be visible largely in FY13.
Assuming no hedges for FY13, its fair value increases by Rs20/share
at current FX levels. The company also 1.4 bn US$-denominated debt
and 500 mn GBP-denominated debt. The rupee depreciation would
increase the effective debt value, resulting in reduction of Rs2/share,
thus resulting in a net impact of Rs18/share
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