Volkswagen India Supplier Option Costs Jump on Emissions Fallout

  • Options demand rises as Volkswagen probe seen hurting profit
  • Volkswagen contributes 44% of Motherson sales: Bloomberg data

Options costs in Motherson Sumi Systems Ltd. rose to a record, as Volkswagen AG’s admission that it had cheated on emission tests in the U.S. raised concern that the Indian auto parts maker would feel the impact.

The cost of at-the-money options in Motherson climbed to 62.34, according to data available as of 3:55 p.m. in Mumbai, the highest level since the contracts began trading in September 2014. The company earned about 44 percent of its revenue from Volkswagen as of July 3, data compiled by Bloomberg show.

Motherson Sumi's at-the-money options
Motherson Sumi's at-the-money options

Motherson’s shares sank 7.7 percent to 241.95 rupees on Tuesday, capping their steepest two-day loss since October 2008. The company’s financial performance will be hurt if the fallout from Volkswagen’s admission spreads to Europe, with earnings-per-share expected to slide about 6 percent in the year ending March 2017 for every 10 percent drop in sales to Volkswagen, CLSA Asia Pacific Markets wrote in a report Tuesday.

“Traders are scurrying to buy Motherson options as there’s a lot of uncertainty on the share outlook,” Ravi Sharma, derivatives analyst with Prabhudas Lilladher Pvt. in Mumbai, said in a phone interview. “Put option prices may not sustain at higher levels.”

Volkswagen said Tuesday it plans to set aside 6.5 billion euros ($7.3 billion) in the third quarter to cover the costs of addressing irregularities in diesel engines installed in 11 million vehicles worldwide, as the scandal that started in the U.S. widens.

Germany, France, South Korea and Italy were among countries on Tuesday that said they would look further into revelations that Volkswagen rigged diesel vehicles to pass emissions tests in the U.S. That comes as the U.S. Justice Department begins its own probe into the matter, according to two officials familiar with the inquiry.

Outstanding Motherson options jumped to 3,913 contracts from 2,385 at Monday’s close. Options with a strike price of 250 rupees, both calls and puts, had the highest open interest.

The 50-stock CNX Nifty index fell 2.1 percent to 7,812. The India VIX Index, a gauge of demand for protection against stock-market swings, surged 11.9 percent to 20.35.

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