Motherson Sumi shares fall 8% amidst VW’s emission cheating scandal

A couple of days after its biggest client Volkswagen admitted to cheating on fuel emission tests in the US, shares of Motherson Sumi Systems tanked nearly 8% as concerns over the business of the auto component major getting affected caused a sell-off. Shares of the company ended down 7.74% today at 241.95 rupees on the National Stock Exchange.

Even as Motherson has a limited exposure to Volkswagen in the USA, the group is a key customer in Europe and the company’s sales to VW contributed 44 percent of its consolidated revenue in FY15.

The controversy around VW surfaced on Sunday when the German carmaker admitted to cheating on diesel emission tests in the USA, after US regulators accused the company of selling vehicles that did not comply with their certificates of conformity, and for manufacturing and installing an electronic control module capable of switching its calibration to beat the emissions. The VW Group is now facing penalties of up to $18 billion. VW has said that it has put aside a fund of 6.5 billion euros (Rs 49,686 crore) to cover the costs of dealing with the issue, adding that it will adjust its financial targets for 2015 as a result.

According to brokerage CLSA, if Volkswagen’s regulatory issues reach the European shores, Motherson Sumi could get adversely impacted. 

“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. The brokerage maintains its ‘underperform’ rating on the stock.

Credit Suisse in a September 9 report also assigned a negative outlook on the auto components maker, citing the loss of market share to Japanese rivals. The company’s dominance with Maruti is reducing, with the latter decreasing its single-vendor concentration.

"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.