Auto stocks at 20-month low on high oil, insurance costs
IIFL Securities Ltd warned the rupee???s decline would impact earnings of auto companies. It said net exporters namely Bajaj Auto, Bharat Forge and Balkrishna Industries would be beneficiaries, while net importers like Maruti may lose out.
\"Users of global commodities such as lead and rubber would also be negatively impacted by rupee depreciation; however, the concurrent fall in US dollar prices of these commodities would provide relief. Users of crude derivatives (tyre makers) would face a double whammy - of higher crude price and a weak rupee,\" it said in a report on 19 September.
IIFL has cut EPS (earnings per share) of?Maruti Suzuki?by 4% citing lower margins as its imports are equivalent to 20-22% of revenues but only partly offset by exports. It said Maruti hedges only a small portion of the net exposure; hence fluctuations in forex rates impact margins almost immediately.
Bajaj Auto has material revenue contribution from exports (40%), most of which are USD-denominated. \"As per its FY18 annual report, outstanding hedges stood at ???10,510 crore (86% of our FY19 estimate). However, two-third of these hedging contracts are range-forwards (options), which provide some upside potential if spot rate moves above the contract rate. Also, only 18% of total hedges are beyond one year. Hence, we expect Bajaj to realize the benefit of the rupee depreciation,\" IIFL said.
