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Motherson Sumi profit lags behind estimates on weaker global auto industry demand

Indian auto-parts maker says it faced "very tough conditions"

Employees of Motherson Sumi Systems Ltd, work on a car wiring assembly line inside a factory in Noida on the outskirts of New Delhi, India (Picture taken in 2016)    © Reuters

MUMBAI (NewsRise) -- Motherson Sumi Systems reported a weaker-than-expected third-quarter profit as a slowdown in the automotive industry weighed on the Indian auto parts maker.

Slowing automobile sales in Europe and North America hurt Motherson, a joint venture between India's Samvardhana Motherson Group and Japan's Sumitomo Wiring Systems, as international markets account for almost 90% of its sales. Demand for automobiles in India has also been slowing since mid-2018 amid higher fuel prices and tighter credit.

The lingering effects of the U.S.-China trade war and uncertainties surrounding the Brexit also cast a pall over the automobile industry. According to CLSA, the European auto industry's growth has slowed from an average 8% between 2015 and 2016 to just 3% in 2017, and 2% in the first nine months of last year.

The weakness in major markets now poses a risk to Motherson's targeted $18 billion revenue by fiscal year 2020. But the company remains confident of achieving the target.

Motherson, whose clients include Germany's Daimler and Volkswagen, said consolidated net profit for the quarter ended in December rose 6.7% to 3.89 billion rupees ($55 million). Revenue grew 14% to 162.34 billion rupees. Analysts were expecting the company to report a net profit of 4.53 billion rupees, according to Refinitiv data.

The company saw "very tough conditions in the global market" in the last quarter, Vivek Chaand Sehgal, chairman of Motherson, told CNBC TV18 television network. "Everything that you could imagine was going wrong."

Sehgal flagged concerns about the U.S.-China trade war and consumer worries over Britain's abrupt exit from the European Union that could turn the current quarter to be even more "challenging."

Last week, Tata Motors, India's largest auto maker by revenue, reported its worst ever quarterly loss as its British luxury car unit Jaguar Land Rover struggled under a slump in China demand and uncertainty surrounding the outcome of the Brexit.

Motherson, which makes a range of products including rear view mirrors, wiring harness, and polymers and modules, has been expanding its capacity over the past four years, opening 33 new plants and making a string of acquisitions.

The company's standalone business, which mainly caters to the domestic market, reported a 19% drop in profit reflecting the weakness in the domestic automobile industry.

Last month, Maruti Suzuki I, the nation's largest car maker, reported a 17% fall in third-quarter profit on higher costs and weaker sales. Mahindra and Mahindra, India's second-largest sport utility vehicles maker, reported a 11% fall in profit in the same period.

Shares of Motherson Sumi lost 1.7% in Mumbai trading on Monday, while the benchmark S&P BSE Sensex closed 0.4% lower.

--Dhanya Ann Thoppil

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