Volkswagen scandal: Motherson Sumi Systems allays investor fears

MUMBAI | NEW DELHI: The rapidly unfolding cheating scandal relating to the Volkswagen illegal software to fudge emissions tests in United States has seen its key vendor Motherson Sumi Systems (MSS) being hammered at the local bourses, forcing the component maker’s management to hastily organise an analyst call to assuage investor concerns.

With fears rising over the probe spreading across continents to Europe and other leading car markets in the world, shares of Motherson Sumi plunged over 8.5% on Monday to a 11-month low. In the global bourses, Volkswagen shares shed a massive 46% of its value in the past two trading sessions.

Allaying fears of shareholders, the top management of the company called for an SOS analyst meet, wherein Vivek Chaand Sehgal, the Group Chairman of Motherson Sumi clarified that the current development should not be seen as anything different from a vehicle recall that other car manufacturers have carried out over the years.

“VW has only stopped selling the diesel cars in the USA, while sale of petrol vehicles continues. For MSS, so far, nothing majorly has happened and it is business as usual,” Sehgal said. In an interview later over phone, GN Gauba, CFO, Motherson Sumi later told ET that the drubbing in the stock market was an “overreaction.” There is no significant or material impact as of now, Gauba said.

Investors’ apprehension cannot be dismissed as an overreaction as nearly 44% of Motherson’s annual revenues accrue from VW and if the investigations spread to other markets in Europe, it is likely to impact Motherson. The company reinstated its goal to be a preferred solution provider globally and achieve its strategy of having “no customer, no component and no country to be greater than 15% share of revenues by FY20.

Motherson is a key supplier to Volkswagen in Europe and sales to VW Group contributed 44% of Motherson’s consolidated revenue in FY15. However, VW alone constitutes 12%. “VW’s admission of not complying with emission standards for some of its diesel models in the US poses a threat to the prospects for Motherson Sumi — if the fallout extends beyond North America,” said Rohan Korde, analyst, Prabhudas Lilldher.