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For auto sector companies, the stars are just not right these days. On the heels of the Amtek Auto fiasco, it’s now the turn of Motherson Sumi Systems to face the heat. Shares of the company have fallen 15 per cent in the past two days after its major client, Volkswagen, was accused by the US’ Environmental Protection Agency for rigging its vehicles with software that help evade mandated pollution norms during testing.
Volkswagen has admitted to not having complied with emission standards for some of its diesel models in the US.
Sales to Volkswagen group accounted for 41 per cent of Motherson’s consolidated top-line in FY15. Of the total 41 per cent, Audi/Volkswagen/Seat brands accounted for 21 per cent/ 12 per cent/ 8 per cent, respectively.
Business as usual: Motherson The rigging issue pertains to the engine largely used in the Volkswagen brand. Most of Volkswagen’s sales are to Europe.
The company in a conference call told analysts that for the company, it is business as usual. Analysts also echoed a similar view.
“The current development should not be seen as anything different from a vehicle recall that other car manufacturers have carried out over the years… With its strong order pipeline, continued debt reduction and improvement in subsidiary profitability, the long-term outlook for the company remains bright,” said Rohan Korde, analyst at Prabhudas Lilladher.
He maintains ‘buy’ recommendation on the stock with a target of ₹400.
This implies an upside potential of 65 per cent.
JM Financial sees limited impact on the company. “Given the information available, near-medium impact seems limited. We retain our earnings estimates, but will keep a close tab on this issue,” it said.
If the fallout spreads beyond North America and beyond the Volkswagen brand, then it is a risk to Motherson’s prospects, analysts cautioned, adding they will keep a watch on further developments.
Option turn active Meanwhile, options on Motherson Sumi Systems turned active. The premium of 240-strike put option jumped 89 per cent at ₹17.65. Even out-of-the money put option such as 210-strike turned active. Motherson’s shares sank 7.72 per cent on Tuesday to close at ₹241.90 on the BSE.
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