[h=1]Falling yen makes room for up to Rs 50,000 cut in prices of vehicles[/h]
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KARACHI: Japanese yen (JPY) depreciation since January 2014 almost 9 percent against dollar till date provided room a cut of Rs 20,000 to Rs 50,000 on different vehicles’ models to Japanese auto assemblers, said analysts.
However, despite 200 basis points system (bps) increase in gross margins of Japanese auto assemblers in Pakistan due to yen depreciating, the fair benefit has not been transferred to the end users yet by any of the auto maker.
Industry sources suggested local Japanese auto assemblers currently have no intention to pass the benefit to the end users as any decision to reduce car prices would be considered post announcement of the Auto Industry Development Policy (AIDP) which was expected to be unveiled by the end of next month auto policy.
Industry analysts’ calculations suggested the car prices should go down in the range of Rs 20,000 to Rs 50,000 on different models due to ongoing depreciation of yen against greenback.
Meanwhile major three auto assemblers have been enjoying huge gains as Japanese currency has been losing its pact against dollar since January 2014. Japan has limited energy resources and can be named as the second largest coal importer and third largest oil importer. The recent slowdown in Japan’s economic activity has also added pressure to the global commodity prices. Pakistan rupee versus ten trading is at 54 months low.
Yen came under pressure after Bank of Japan reiterated to continue its Quantitative and Qualitative Monetary Easing (QQE) programme and also increased its programme size to yen. US Central Bank’s decision to exit from its bond-buying programme (aka QE3), further exerted pressure on yen against dollar.
Because of the recent depreciation in yen, implied Pakistan rupee/ten parity fell to 0.906, lowest since May 2010. Since Indus Motor Company (IMC) Corolla’s Completely Knocked Down (CKD) cost is dominated in yen, the analyst at Global Research believed the recent appreciation in rupee/yen parity was expected to further revitalise Company’s margins.
Two years back, dollar/yen parity stood at 76.96 against dollar now it is trading 114.23 against the green back (depreciation of 48 percent during the period (2012 till date).
Consequently, ignoring the dollar/rupee parity local car prices should considerably go down in the local market, said Shajar Capital Research’s analyst Yawar Uz Zaman in a report.
Japanese auto assemblers in Pakistan raised prices thrice in 2013 citing dollar appreciation against rupee.
The Pakistan’s automobile sector posted an astonishing return of massive 125 percent during the 2014 till date. The sector’s return of such quantum compares quite favourably with the benchmark Karachi Stock Exchange (KSE-100) that posted a return of 19 percent during the same period.
The said theme largely supported by the numbers, as yen depicted 8.7 percent decline since January 2014 resulting into a 200bpsYear on Year (YoY) rise in gross margins of the sector July-October 2014. Apart from the exchange rate effect, further support to margin came from the fact there was no reduction in car prices by the assemblers, said analyst.
The major listed companies IMC, Honda Atlas Cars, Pakistan Suzuki Motor Company and Ghani Automobiles represent 65 percent of the market capitalisation registering 51 percent YoY increase in earnings during the period ended July-September 2014. In this regard, topline of the sector increased by 10 percent YoY owing to upsurge in both volumes and price movement.
Moreover, sources suggested government would provide certain tax incentive for auto parts importers and would incentivise the domestic assemblers, Zaman added.
Falling yen makes room for up to Rs 50,000 cut in prices of vehicles