Maruti Suzuki Plans to Cut Costs by Buying Parts Locally image

Maruti Suzuki plans to rise local content in its vehicles as costs of imported component is pushed up by rupee’s decline.

“The rupee’s fall is adversely affecting us as we’re a net importer,” Ajay Seth, chief financial officer at the New Delhi-based company, said in a telephone interview. “We will continue to aggressively localize sourcing; it’s not going to happen overnight.”

The Indian rupee dropped to a record low level after the Federal Reserve said it is ready to begin phasing out its stimulus program which has increased inflows into emerging markets. Maruti Suzuki’s import prices accounted for almost 20% of its sales and the automaker has currency hedges only until the end of this month.

Maruti Suzuki reported profit during first quarter almost doubled due to weaker yen and increased demand for the Swift DZire and the Ertiga minivans. Suzuki Motor net income increased to 12.4 billion rupees ($228 million) during the first quarter from 6.4 billion rupees. Demand for its most expensive models increased even if total deliveries fell 4.6% to 343,709 units.

“Maruti’s margins should rise with the increasing share of more expensive products like Swift and DZire, as well as the declining yen,” said Basudeb Banerjee, an analyst at Quant Broking Pvt. in Mumbai.

Source: Bloomberg