Argentina's peso crash not a worry for Bajaj Auto

Argentine peso lost nearly quarter of its value on Thursday following the abandonment of the peso-dollar parity. The sharp fall in the currency of the second largest Latin American country prompted investors to sell the stock of Bajaj Auto, which earns nearly 20% revenue from Latin America.

Bajaj Auto is market leader in Argentina with 30% market share and Pulsar has been among the top selling bikes. The company enjoys a superior margin on its exports vis-a-vis domestic market. The export business is expected to contribute 35% of the projected operating profit of the current fiscal year as compared with the anticipated domestic contribution of 21%, according to analysts’ estimate.

Bajaj Auto lost over Rs 1,400 crore in market capitalisation on Friday following the peso’s depreciation. Its stock fell 2% to Rs 2,475.1 at the end of Friday’s trading session. A major reason why investors need not fret is the fact that the company exports bikes to Argentina at what can be called as market-determined exchange rate — referred to as the blue dollar rate — and not at the government-specified rate. The blue dollar rate is as such 25-30% more than the government’s indicative rate. Therefore, Bajaj Auto’s bikes will not get more expensive due to peso’s depreciation.

“The landed cost of our bikes will not change since the local distributors price them based on the blue dollar rate,” said S Ravikumar, president - business development, Bajaj Auto.

Another factor is the expected increase in the propensity of Argentina. The newly-elected government is likely to help farmers to export better, which should increase per capita income thereby aiding purchasing power.