Karachi: The recent appreciation of the Japanese Yen is anticipated to have a minimal impact on the profit margins of Pakistani automobile original equipment manufacturers (OEMs), despite potential increases in manufacturing costs.
According to AKD Securities Limited, the Japanese currency has seen a significant 11.4% rise against the US dollar following Japan's central bank's decision to hike interest rates last week. This upward trajectory is likely to persist with additional anticipated rate increases by the Bank of Japan amid ongoing global economic shifts and geopolitical tensions.
INDU, with about 20% of its costs tied to the Japanese Yen, might see slightly higher raw material costs, although the broader impact on its financials is expected to remain contained. Similarly, HCAR, which sources 12-15% of its raw materials from Japan, is projected to experience only a marginal effect on its margins due to its diversified sourcing strategy.
The potential financial implications for OEMs will become clearer in the fiscal quarter ending December, with current predictions suggesting that the impact on margins will be negligible. This outlook is bolstered by the current high vehicle prices, which are likely to deter manufacturers from passing additional costs onto consumers, thereby preserving demand levels in a competitive market.
In its latest analysis, AKD Securities maintains a positive outlook on INDU, recommending a "BUY" with a target price of PkR2,100 per share by June 2024, and a "SELL" stance on HCAR, targeting a price of PkR320 per share by June 2025.