Indian auto sector most affected by Brexit

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NEW DELHI:- Auto stocks bore the brunt of the Brexit impact losing nearly 10% of their value. Tata Motors which gets about a quarter of its volumes from the UK was among the worst affected as was auto component supplier Motherson Sumi which supplies parts to a number of luxury car makers.

While JLR sources about 40% of its parts from the EU, costlier imports on higher duties will make exports uncompetitive. However, the positive would be a weaker pound which could offset some impact.

Motherson sources its parts from across the globe though both its subsidiaries accounting for over 80% of revenues are based in Netherlands. While sourcing of raw material happen in local currency, the impact either way could be on currency translation.

The other two auto companies with a major exposure to Europe are Bharat Forge at 39% and Apollo Tyres getting about 30% of revenues from Europe.

The key issue is the impact on Europe from Brexit if it leads to fall in auto sales. That will have a major impact on the key auto stocks and those that have plants in multiple locations. 

Barring Aurobindo, Brexit will have limited impact on pharma space.While Aurobindo gets 22% of revenue from Europe, Torrent Pharma, Natco and Dr Reddy’s get 10-11% or more of revenues, for others it is lower than 5%. For these companies the impact could be 1-2%. Euro based costs are an offsetting factor.

Tata Steel could see some impact given UK accounts for 25-30% Tata Steel’s Europe volumes and part of this is exported to Europe which could face higher tariffs. 

Brexit impact: India Inc braces for huge losses

MUMBAI:- It was a somber mood at the boardrooms of Indian companies, which have huge exposure in Britain and in the European Union. Companies like Tata Motors (JLR),Tata Steel Europe and Motherson Sumi are expected to face falling sales, increased costs of operations and immigration barriers for its employees.

Though the actual exit of Britain will take a couple of years, companies like JLR and Tata Steel will have to make alternate arrangements to sell their products in the European Union.  

Just before the vote, both Tata Steel Europe and JLR had told its staff the relationship between the UK and the EU is very relevant for the company.  “The EU is by far our largest export market, with over a third of our UK steel heading there… (and) access to that market is fundamental to our business,” Tim Morris, head of public affairs at Tata Steel Europe said.  If Britain were to exit the EU, Tata Steel would no longer be able to influence some of the major regulations such as environmental controls and anti-dumping measures which impact its UK operations.

“It is likely we would still need to adhere to EU rules to enter that market. The difference: we would no longer have a say in how they are set up or applied.” Tata Steel UK is in the process of selling its UK business and is negotiating with the British government to retain part of its operations. The voting today would expedite the sale process, analysts said. On the other hand, JLR sells 25% of its products made in UK to rest of Europe and it is in the process of setting up another plant in Slovakia to cater to the demand.

Motherson Sumi Chairman V C Sehgal said that Brexit will not impact much as the company has two plants in UK which caters only to British customers. “We are planning to set up third plant in the UK – Brexit or no Brexit,” he said. Pharmaceutical companies like Lupin and Cipla would also be negatively impacted as it would earn less when exports.

“I think that we have seen a knee jerk reaction and there is huge job ahead to go out of Europe… There are  many aspects which must be done and it will be almost two to three years, as about 10 years ago, there was clause inserted that if a country is set to leave then the Government, (it) has to extract itself on conditions, which have to be agreed and as well other things. So as far as I am concerned, it will be business as usual and as well I do not see any changes as England is still a part of the EU and does not cease to be because of a referendum,” said Sehgal.

 

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