Honda Cars India to step up auto parts export to counter falling rupee

Honda Cars India plans to step up export of auto components in a bid to shield itself from the falling rupee, company’s top official said.

The local arm of the Japanese carmaker, which exported components worth Rs 15 billion in the 2017-18 fiscal year to Honda’s subsidiaries across countries such as Philippines, Thailand, and Japan, is looking to ramp up overseas shipment and aggregates to Rs 17 billion by the end of this fiscal year. The move will offer a “natural hedge” against the depreciating rupee, said Rajesh Goel, senior vice president and director sales and marketing at Honda Cars. 

“An aggressive localisation of the models and exports of cars and parts are the only ways to counter the falling rupee,” said Goel. Since the launch of the Amaze compact sedan in April 2013, which marked the company’s entry into diesel car segment, Honda India has been stepping up exports of components every year, he added. The rupee has been slipping against the US dollar in recent days as emerging markets come under pressure. That has made the local currency one of Asia’s worst performers, losing 12 per cent this year, Bloomberg reported. On Monday, the rupee closed at 72.45 to the dollar. 

Like other global carmakers in India, Honda imports parts and completely knocked-down kits of cars from Japan, Thailand, and some other south-east Asian countries. A depreciated rupee will bump up the company’s import bill. 

Last year, Honda commenced exports of fully built diesel engines to Thailand, which in turn would sell them to other Asean countries with which it has a free trade agreement, said a company’s spokesperson. 

Puneet Gupta, associate director at IHS Markit, sales forecasting and market research firm, said, “You can be financially viable in this market either through a strong domestic presence or through exports of parts and vehicles.”  

Honda’s arch-rival Toyota, too, has been exporting parts and aggregates from India. In 2017-18 fiscal year, Toyota Kirloskar, along with its subsidiary for auto parts, shipped components worth Rs 2.76 billion. In the first five months of the current fiscal year, the entities exported parts and aggregates worth Rs 1.36 billion against Rs 1.39 billion in the same period last year, according to firm’s spokesperson. Notwithstanding the sliding rupee and its exposure to imports, Honda unlike its other Japanese rivals has yet to take a price hike. “For the time being, we are holding on to a price hike as we don’t want to disrupt demand during the festive season,” said Goel. 

According to a plan to increase its volume and market share at a rapid pace, during the auto expo in February this year, Honda announced bringing three new models this fiscal year. Of these, it has launched the second-generation Amaze, and plans to introduce the CR-V next month, followed by the Civic by the end of this financial year. 

“In this fiscal year, we expect to grow faster than the industry,” said Goel. In the fiscal year ended in 2018, Honda sold a total of 0.172 million units, a growth of 8 per cent over 2016-17. In the April-August period, it has sold 79,599 units, up 9 per cent from 73,012 units in the corresponding period of previous fiscal year.

Gupta said the sliding rupee could have an impact on the price competitiveness of Honda CR-V and Civic, given that both were going to be imported as a completely knocked-down kit (CKD) and not   going to be manufactured locally. This may have an impact on their volumes. 

“When they planned these models for India, the rupee was stronger, there was also an anticipation of lower rates under GST regime, but the situation has reversed now,” said Gupta. GST rate on such high models (including cess) is 50 per cent.