Moneycontrol Bureau 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.
At 10:38 hrs Motherson Sumi Systems was at Rs 251.90, down Rs 10.25, or 3.91 percent on the BSE.
Posted by Nasrin Sultana Follow @NasrinzStory
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