Bajaj Auto has increased exports gradually over the past decade. From just over 5% 10 years ago, exports now account for nearly half of the total sales volumes. This has helped India's third-largest two-wheeler maker to reduce the risk of demand slump in its home market, but has increased its exposure to the vagaries of the foreign currency (forex) fluctuations.
For example, Egypt devalued its currency by 13% on Monday. With nearly 5% share in motorcycle export volumes and 20% share in three wheeler exports, the country features among the top five markets for Bajaj Auto. Over the past six months, the company's other markets including Argentina, Colombia and Nigeria have also suffered from sharp devaluation of currencies.
A depreciation of local currency hits demand since it increases the cost of ownership of vehicles in that market. If the exporting company plans to absorb the currency impact, it may have to settle for lower profitability. Recently, Bajaj Auto reduced prices in Nigeria, but kept it intact in Argentina when their respective currencies slid sharply.
Another critical factor is forex availability in emerging markets (EMs). While EMs do offer an opportunity considering rising demand for bikes, they must also have sufficient forex reserves to pay for their impo rts. In the past six months, Bajaj's monthly exports volume was impacted by 15,000-20,000 units due to lower dollar availability. The export volume growth fell 4% to 16.3 lakh units in the first eleven months to February.
The company has lowered the forecast of export volume growth to 1.84 million for FY16. Analysts believe the issue of lower dollar availability may persist in the near term. So, they have pared the exports growth of Bajaj Auto by 7-22% between FY16 and FY18.