NANDANA JAMES Mumbai, March 2

The auto component sectorhas seen a recovery in the lasttwo quarters on the back ofthe increased affi��nity for per-sonal mobility amid the pan-demic, and the demand out-look for the next fi��scal yearremains upbeat after twoyears of prolonged slow-down. However, factors likethe shortage of semiconduct-ors, rise in commodity pricesas well as the unavailability ofraw materials weigh heavilyon the growth prospects.

“With the unlocking of theeconomy, the sales of vehiclesare witnessing improvement,month-on-month, (and) thisin turn is leading to produc-tion growth in the auto com-ponent sector. The sector hasnow reached pre-Covid levelproduction. Whilst demandis strong, there are head-winds as well. The semicon-ductor shortage, steep in-crease in raw material pricesand their non-availability,shortage of containers andincreasing freight costs couldderail the recovery in the

automotive sector,” DeepakJain, President, AutomotiveComponent ManufacturersAssociation of India (ACMA),told BusinessLine.

“The next year looks prom-ising… It’s hard to forecast,but we expect FY22 to bringauto demand to more or lessthe 2018-19 level, the best yearfor most vehicle segmentsand the auto component in-dustry so far. Yes, there is con-cern about suffi��cient availab-ility of semiconductors, andabout the increasing price ofsteel, aluminium and otherinputs, but the auto and thecomponent industry arehighly innovative and resili-ent,” said Ashok Taneja, MDand CEO, Shriram Pistons &Rings.

Mostly importedSemiconductors are predom-inantly imported and hencehave hardly any direct impacton revenues of domestic autocomponent players, saidHetal Gandhi. However, theglobal shortage of semicon-ductors has impacted pro-duction of specifi��c models in

the domestic passengervehicle industry as the lack ofthis single component im-pacts the complete produc-tion line, she added.

“Thus, component suppli-ers to such models are expec-ted to have been impacted.However, this represents asmall share of the total auto-component production, es-pecially as demand from PVOEMs constitute less than 30per cent of auto-componentproduction. Despite this, sup-ply constraints owing to lim-ited availability of semicon-ductors remains a key

monitorable,” Gandhi ex-plained.

The prices of raw materials,which have risen sharply, aswell as the prolonged delaysin the delivery of raw materi-als are some other concerns.“Prices of steel, which aloneaccounts for 60 per cent ofthe raw material cost, wit-nessed an increase of 15-20per cent in the quarter endedDecember 2020. In Januarythis year, there was again anincrease of 5-7 per cent,” saidJain. The upsurge in the costof commodities and raw ma-terials add to the overall cost

of products and adversely im-pact industry margins, headded.

Production environmentRising input costs combinedwith OEMs’ cost-cutting pres-sure is something the suppli-ers are always challengedwith and the uncertain pro-duction environment hasonly aggravated this, saidSuraj Ghosh, Principal Ana-lyst — South Asia PowertrainForecasts, IHS Markit. “Butgiven the overwhelming re-sponse received by some ofthe new launches and re-freshes, the outlook for sup-pliers looks positive in theshort term.”

In Q3FY2021, credit ratingagency ICRA revised its out-look on the auto-componentindustry from negative tostable, with a revival in de-mand across OEMs, aftermar-ket and exports market. “Oursample of 50 listed auto com-ponent suppliers registeredover 20 per cent YoY growthin revenue during Q3FY2021,indicating the worst is be-hind us… ICRA expects thatgrowth in FY2022 is likely tobe strong at 16-18 per cent,”said Ashish Modani, Vice-President, ICRA Limited.

But semiconductor shortage, rise in raw material prices still a concern

Auto components sector’s demand outlook upbeat for FY22

An increase in sales of vehicles is leading to production growth inthe auto component sector