Shares of Motherson Sumi Systems (MSS) on Monday declined nearly 8% to its lowest level in 11 months after its biggest client, Volkswagen, admitted to rigging American emissions norms and thereafter halting sales of diesel cars in the US market with immediate effect, reports fe Bureau in Mumbai.
Volkswagen accounts for 44% of Motherson Sumi’s consolidated revenue, Bloomberg data showed.
Motherson’s shares ended at Rs 262.15 on the BSE each, down Rs 21.70 or 7.64% from the previous close. More than 58.31 lakh shares were traded on the BSE and NSE, 1.73 times its 30-day average volume, stock exchange data showed.
Data also show that MSS’ European business contributes about 70-75% of the company’s total revenues and the bulk of it is contributed by German luxury original equipment manufacturers (OEMs) such as BMW, Volkswagen and Audi.
MSS gets 25% of its revenues from the Indian business and nearly all OEMs present in India are its customers.
Credit Suisse in a September 9 report assigned a negative outlook on the New Delhi-based auto components maker, citing the loss of market share to Japanese companies. The company’s dominance with Maruti is reducing, with the latter decreasing its single-vendor concentration.
“Our channel checks indicate that Motherson’s near dominance with Maruti is coming down. Maruti is now in the process of strictly enforcing its single-vendor not having a 70%+ share policy, and hence Motherson, which currently has an 85% share, is expected to suffer. Other Japanese wiring harness majors — Yazaki and Furukawa (in JV with Minda Corp) — are becoming increasingly aggressive,” said Credit Suisse analysts Jatin Chawla and Akshay Saxena in a client note.
On Monday, Volkswagen’s shares plunged as much as 23% to 125.40 euros in Frankfurt, extending the stock’s slump for the year to 31%. The decline wiped out about 15.4 billion euros ($17.4 billion) in value, Bloomberg data showed.
Analysts said Volkswagen faces not only a short-term drop in sales and a hit to its reputation but also the longer-term risk of litigation in the US. The violations, which affect nearly half a million vehicles, could result in as much as $18 billion in fines, based on the cost per violation and the number of cars. Criminal prosecution is also possible, they said.
The Wolfsburg, based German company admitted to fitting its US diesel vehicles with software that turns on full pollution controls only when the car is undergoing official emissions testing, the Environmental Protection Agency said on Friday.
However, company sources at Volkswagen India said the developments in the US will not adversely impact domestic operations. MSS officials were not available for comment.