Rupee-dollar fluctuations hurting margins: Volvo MD

While company would hold on to prices for now, hike likely by end of 2013

Volvo Auto India says that fluctuating rupee-dollar valuations has hit its margins, and while the company is planning to hold on to prices for sometime, a price increase is on the anvil by end-2013 or early next year.

With the Indian rupee falling to record lows, almost touching Rs 60 against the US dollar, for companies like Volvo Auto India which import completely built units (CBUs) into the country, the going has just got very tough.  

At present, import of CBUs attract an over 100 per cent duty. Volvo does not have a manufacturing facility in India and currently imports all its cars from Europe.

Tomas Ernberg, managing director, Volvo Auto India said, "Our cost base is in Sweden, and we do hedge for periods of six months to a year. But, yes, the current rupee-dollar fluctuation is indeed hurting our margins. We are hoping that the rupee will gain ground. As for the long run, we are also mulling at raising our prices in the range of 1-3 per cent across models."

The price rise might come in the last quarter of calendar year 2013 or early 2014, Ernberg said. He did not wish to reveal the margins though. Volvo follows a calendar year fiscal, and had sold over 820 cars in 2012, and aims to sell around 1100 vehicles this year.

Analysts feel that in the wake of currency fluctuations which affect imports, while in the short term companies have no other option but to raise prices or take a hit in the margins if market conditions do not support a price rise; in the longer term, however, they have to focus on increasing localisation.

"It is important to build critical volumes that would support local manufacturing, and MNCs usually work out business plans combining domestic sales plus exports to touch that critical mass. As for example, Ford India has said that India would be an export hub for its upcoming SUV EcoSport," said a Mumbai-based analyst.

Ernberg, however, indicated that there were no plans to start a manufacturing facility in India at the moment.  

With the launch of the feature-rich Volvo V40 cross-over vehicle at an attractive pricing of Rs 29.15 lakh, the company has already received 75 bookings within a week of the launch.

"We had targeted to sell around 120 Volvo V40s this year, but from the initial response, it looks we might end up selling more," said Ernberg.

Volvo has strategically offered several features in the standard version of the V40 in India.