Motherson Sumi Systems shares remained in limelight this week amid
concerns related to German automaker Volkswagen (VW), which has
admitted to cheating emissions test in the US and may face a fine of up
to $18 billion.
Motherson is a key supplier to Volkswagen in Europe and sales
to VW Group accounted 44 per cent of Motherson’s consolidated revenue in
2014-15. However, VW alone constitutes 12 per cent of Motherson Sumi
sales.
The share price of Motherson, which supplies parts such as mirrors,
bumpers, dash board and door trims to various auto companies of the
Volkswagen Group tanked after the controversy surfaced.
The following are the FAQs relating Volkswagen emissions scandal.
The company has falsified emissions data on its vehicles in the US, pretending its cars were cleaner than they are
By installing a piece of software
into computers on its cars that recognise when the car is being tested –
a so-called "defeat device". This fine-tunes the engine’s performance
to limit nitrogen oxide emissions. When used on the road, the emissions
levels shoot back up
Regulators say 482,000 diesel cars
were sold in the US from 2008 to 2015 with emissions certificates based
on this faulty information
The allegations, which have been
admitted by VW, cover the Jetta, Beetle, Audi A3 and Golf models from
2009 to 2015 and the Passat in 2014 and 2015
A US investigation has been
widened to other car manufacturers as campaigners warned that the
practice was likely to be widespread across the industry.
Now let us examine what Traders/ Investors should do using two basic approaches.
1. The Fundamental Approach : After the recent correction, if you are thinking to add Motherson
Sumi shares in your investment portfolio then hold on for a while.
We suggest investors to wait for the stock to correct at least
Rs 200 level. At current market price, the scrip is trading around 17x
FY17 EPS. This kind of P/E for an auto component company is quite
stretched in our view. Sentiment wise there could be more adverse news
flows for Vokswagen as issue is not just recall of vehicle rather
rigging fact. The same could impact valuation multiple for Motherson
Sumi.”
In the past 10 years, consolidated gross sales of the company jumped
around 45 per cent annually to Rs 35178.60 crore for the financial year
ended March 2015. Gross sales was at Rs 882.73 crore at the end of FY05.
Net profit of the company jumped 31 per cent annually during the same
period.
For the year ended March 2015, the company posted a consolidated net
profit of Rs 1291.50 crore against Rs 85.83 crore in FY05. During the
period debt-to-equity ratio of the company jumped from 0.53 in FY05 to
1.55 in FY15.
2. The Technical Approach : The counter has broken major support around 285 levels on a daily chart. As per weekly chart the counter held its support zone of 250 levels on a closing basis after posting a swing low around 228 levels. On a monthly chart the counter had a major support around 300 levels which has now been broken in a convincing manner.
So putting together all the time frames it seems that the counter is highly oversold on a daily chart with major trend down. Traders should resort to sell on rise strategy unless and until the counter gives a consecutive closes above 285 marks. In other words the shorting zone seems to be 275-280 areas with placing SL above 200 DMA which seems quite difficult for the counter to regain at least in a short to medium term.
