Shares of Motherson Sumi extended losses for second consecutive day,
falling over 8 percent intraday on Tuesday. The stock was at 52-week
low of Rs 239.65 per share and down 14 percent year-to-date due to
concerns around one of its biggest clients Volkswagen.
The German carmaker has been accused of cheating on diesel emission
tests in the USA and may face penalties of up to USD 18 billion.
CLSA maintains an underperform rating on the stock and warns of
adverse impact if Volkswagen’s regulatory issues spill over to Europe.
Currently, Motherson has a limited exposure to Volkswagen in the USA.
Volkswagen is a key customer for Motherson in Europe and sales to its
group contributed 44 percent of its consolidated revenue in FY15.
According to CLSA estimates, if Motherson’s revenue from Volkswagen
group declines by 10 percent, it could result in 6 percent downside to
FY17 consolidated earnings per share (EPS).
“We continue to remain cautious on Motherson shares given the slow
pace of Indian auto demand recovery and slower-than-expected margin
improvement.
We believe that these regulatory issues for VW Group will be an
additional overhang on the stock in the near term until more clarity
emerges,” CLSA says in a note.In a response to CNBC-TV18, management
of Motherson Sumi has said that the company has only two big plants in
USA and are not affected by VW issue in any manner.
However, trouble for the German car maker has spread to South Korea as
the country’s environment ministry will conduct an investigation into
emissions of Volkswagen AG and Audi diesel cars after the firm
admitted rigging emissions tests on diesel-powered vehicles in the
United States.Meanwhile, Credit Suisse has already raised an alarm of
Motherson Sumi’s slowdown in domestic business.
“Motherson’s near dominance with Maruti is reducing as the
four-wheeler manufacturer is decreasing its single vendor
concentration. Maruti is in process of enforcing its single vendor not
having more than 70 percent share. Hence, Motherson which enjoys 85
percent share in Maruti component parts will suffer,” Credit Suisse
said.
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