UML can bank on Mitsubishi to cut forex related cost increases
View(s):United Motors Ltd (UML) would be able to pass on forex related cost increases in the Mitsubishi car range as the rupee has weakened against the Japanese Yen since the rupee was floated, a Bartleet Religare research report says.
Highlighting the possible downside risks to UML (in the mid-term), the report said that the motor industry is more dependent on government policy and the rupee’s gradual downward slide could make UML’s product portfolio more expensive. “While we believe that the Mitsubishi range can pass on the costs in entirely without affecting the total returns, it is likely that the more cost conscious (customer) segment may show a hit in demand if the prices are higher. However, the price sensitive vehicle segment is likely to get cheaper with the depreciation that the Chinese Yuan has experienced,” it said.
The government’s stand on motor vehicle taxation policy in the upcoming budget in November is key to vehicle demand, it added, noting that pre-budget views suggest higher taxes given the rise in the country’s consumption led expenditure balance of payment gap and the looming fiscal deficit. “Competition from a possible Volkswagen plant, if materialised could have similarly taxed inexpensive Volkswagens released to the car market. However they would be restricted to assemble only 500 cars per year. Further, given Volkswagen’s legal troubles that is likely to put them back by as much as US$ 18 billion, the position in their priorities on a Sri Lankan assembly plant is questionable,”
It said that the increase in the number of vehicles coming from the local assembly is taxed at 40 per cent.