Britain’s decision to leave the European Union may have an adverse impact on business of auto component manufacturers like Motherson Sumi, Mahindra CIE and Bharat Forge as bulk of the revenues of these manufacturers come from the European operations.
Motherson Sumi – the Pune based-automobile component manufacturer earns 70% of the revenues from its operations in Europe. The company is one of the biggest suppliers for the entire Volkswagen group in Europe.
Mahidra CIE also supplies components to both passenger and commercial vehicle manufacturers in Europe and it is heavily dependent on its operations in the continent as 80% of the revenues come from the region. Baba Kalyani led Bharat Forge which holds 25% of its total assets in the Europe and has 15% of its total revenues flowing in from the region also has the same business model like that of Motherson Sumi and Mahindra CIE.
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Now that Britain has chosen to leave European Union countries like France, Italy and others may also look to part ways from EU which may further increase the uncertainty in the region.
“Britain’s decision to leave Europe will have limited impact on our business in Europe. Our clients in the region have good fundamentals and our volumes in the continent will be steady in the long term. Europe will continue to recover economically, hence car sales will increase,” said an executive of one of the above mentioned companies.
As a consequence of Britain’s exit, economy of European Union may slowdown – as Britain was one of the highest financial contributors in the union – which may decrease car sales in the Europe. This may adversely impact the Indian component manufacturing companies.
“Due to the political and economic uncertainty in Europe, car market may take some more time to recover from the previous slowdown of 2012-13. We have to also look at whether other EU members also look to step out of Britain or not which may have serious economic consequences,” said an automotive consultant on condition of anonymity.
Shares of auto component manufacturer Motherson Sumi lost close to 8.48% while the scrip of Mahindra CIE lost 3.69% during the session. Shares of Bharat Forge, also closed 0.35% lower.
