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The shortage of semi-conductor and an increase in commodity prices remain key challenges for the industry in the near term
According to credit rating agency ICRA, the auto component industry is expected to log 20-23% revenue growth during this fiscal, supported by recovery in the domestic automobile sector and robust exports, with all segments likely to report healthy double-digit growth in 2021-22, on Thursday. It also said that Most domestic automobile segments, especially passenger vehicles (PVs) and tractors, continue to witness strong demand and are almost at pre-Covid-19 levels. Also the Medium and Heavy vehicle segment which was impacted during the April quarter are showing signs of recovery.
The industry gross margins improved sequentially in the first quarter of 2021-22, but remain lower than the historical trend. However, the shortage of semi-conductor and an increase in commodity prices remain key challenges for the industry in the near term, it added.
Shortage of semi conductors is a key challenge
The shortage of semi-conductors remains another key concern for the industry. The automotive industry accounts for 11% of global semi-conductor demand. Stronger-than-expected recovery, along with supply disruption at some semi-conductor manufacturing facilities, has aggravated chip shortage issues globally, as per the ratings agency.
ICRA said the automobile supply chain is long and complex, with OEMs or tier-1 relying on JIT inventory management practices. The rating agency added that it takes about six months from chip production to car production, with several tiers of suppliers in between, which has resulted in this global demand-supply mismatch.
In India, many passenger vehicle OEMs have acknowledged the impact on production volume due to semi-conductor shortage, with volume loss of one lakh units in the second quarter of FY2022, which accounts for around 3% of their annual production itself.
Nevertheless, the challenges faced by OEMs in India have been relatively limited due to lower semi-conductor-based components given the sales mix being skewed in favour of Class A&B cars. Further, OEMs have been trying to develop alternative sources, airlift material and pursue other innovative solutions to overcome the semi-conductor supply issue, it said in the statement.