Car Exports Decline But Auto Makers Unfazed.

Car exports from India are declining due to sluggish demand in Europe, but experts say this allows auto makers to sell more in the robust domestic market and boost profit margins. Maruti Suzuki India Ltd's car exports shrunk by one-third in December to 9,756 units compared with a year earlier, capping a quarter that saw the contribution of exports to overall sales decline to 10% from 15%. Chairman R.C. Bhargava said he is not worried. The reason? India's largest car maker makes more money by selling in the domestic market, which expanded by more than 25% over the past 12 months. "Lesser the contribution of exports in a company's overall margins, the better," said Vineet Hetamasaria, analyst at Pincmoney, the brokerage arm of Pioneer Investcorp Ltd. Hetamasaria said the growing weight of domestic sales compared with overseas sales is profitable as it reduces Maruti's exposure to foreign exchange. Moreover, the company earns higher margins selling cars in India.

In fact, so high was the domestic demand for cars in 2010 that buyers of some models had to wait three-four months for delivery, leading auto firms to announce capacity expansion plans. The fall in the contribution of overseas sales to Maruti's volumes in the December quarter will scale up its margins by 30-40 basis points from the September quarter, Hetamasaria added. One basis point is one-hundredth of a percentage point. Maruti's exports are second only to Hyundai Motor India Ltd, where overseas sales dropped by 15.6% to 21,060 units in December over a year earlier. The company used to ship out nearly half its production to Europe until 2009. The falling exports of these market leaders brought down India's overall export volume to 285,000 cars in the eight months to November, or 1.64% down from a year earlier, according to the Society of Indian Automobile Manufacturers Association. This was primarily because of falling sales in Europe after a scheme that allowed buyers to trade old vehicles for new, small cars was discontinued six months ago. In India, Hyundai and Maruti were the biggest beneficiaries of the scheme. About 12.3 million new passenger vehicles were registered in the European Union in the 11 months to November, 6% lower than a year earlier, according to the European Automobile Manufacturers Association.

"So far there is little to indicate that demand from Europe will get back to the earlier levels," said Bhargava. "The neutralizing impact of the incentive schemes in Europe on the exports could not have come at a better time," said Hetamasaria, referring to the upsurge in domestic demand. Ashwin Chotai, a Londonbased auto analyst, said the fall in overseas shipments is unlikely to affect the plans of car makers that have made India an export hub. "They have all adopted different strategies. It will also depend on the new model launch plans," he said. For instance, Nissan Motor Co. Ltd, which counts Europe as its key export market, "closed down its (production) unit in Europe after it had set up the factory in India", Chotai said. Nissan India exported 21,000 units of the hatchback Micra in October-December and plans to ship out 110,000 units in the first full year, a Nissan India spokeswoman said in an emailed response. It also plans to start exporting soon to West Asia and Africa.

Source : indiainfoline.com