Motherson Sumi extends selloff, tumbles 8% on Volkswagen woes

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Mumbai | Published: September 23, 2015 12:05:31 AM

Motherson Sumi declined an additional 8% following reports that the emission-fixing scandal that has engulfed Volkswagen in the US could extend to other companies and countries.

Motherson Sumi declined an additional 8% following reports that the emission-fixing scandal that has engulfed Volkswagen in the US could extend to other companies and countries.

Motherson Sumi ended near its 52-week low on Tuesday, losing nearly Rs 5,600 crore in stock-market value since close on Friday. More than 2.21 crore shares exchanged hands on the BSE and NSE, seven times the 30-day average daily volume.

The US government confirmed on Monday it had initiated a probe into the scandal and South Korea on Tuesday said it would investigate emissions of VW Jetta and Gold models and Audi A3 cars produced in 2014 and 2015. The probe could extend to all other German diesel imports if problems are discovered, said the South Korean environment ministry.

Auto analysts quoting various international reports said there are many examples of carmakers using defective devices and later on forced to recall vehicles.

The scandal could also spread to petrol cars and Co2 levels. According to Prabhudas Lilladher, the scandal, and the subsequent recalls, pose a potential threat to the prospects for MSS — if the fallout extends beyond North America.

“The current development should not be seen as anything different from a vehicle recall that other car manufacturers have carried out over the years. If VW’s global market share goes down because of this development, it is possible that MSS may not be impacted as some other OEM, which takes up the slack, is also a MSS customer. However, with its strong order pipeline, continued debt reduction and improvement in subsidiary profitability, the long-term outlook for MSS remains bright,” said Rohan Korde, analyst, Prabhudas Lilladher.

Motherson Sumi chairman Vivek Chaand Sehgal in a television interview termed the market development as ‘over-reaction’ and allayed concerns over its exposure to leading Indian carmaker, Maruti Suzuki. Sehgal said Motherson has limited exposure to Volkswagen’s diesel vehicles and that the German carmaker was strong enough to withstand the financial impact of the development.

“We are not making the parts that go in to the engine. Our parts are mostly the interior parts like modules and plastics. As far as our exposure to Volkswagen in US is concerned, it is very less…We are being quizzed for someone else’s fault,” Motherson Sumi Systems chief financial officer GN Gauba said.

The US allegations involve a series of diesel cars produced by VW and the brands it owns, such as Audi. These include the Audi A3, VW Jetta, Beetle, Golf and Passat models. VW has halted sales of these models.

Volkswagen AG shares fell nearly 20% to 107.22 euros in Frankfurt on Tuesday, after seeing a similar decline on Monday.  Shares of Renault, Volkswagen’s French rival, also dropped by 4%, while Peugeot was down 2.5%, Nissan 2.5% and BMW 1.5% amid concerns they could be caught up in investigations, 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 Friday.

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