NANDANA JAMES Mumbai, March 2 The auto component sector has seen a recovery in the last two quarters on the back of the increased anity for per- sonal mobility amid the pan- demic, and the demand out- look for the next fiscal year remains upbeat after two years of prolonged slow- down. However, factors like the shortage of semiconduct- ors, rise in commodity prices as well as the unavailability of raw materials weigh heavily on the growth prospects. “With the unlocking of the economy, the sales of vehicles are witnessing improvement, month-on-month, (and) this in turn is leading to produc- tion growth in the auto com- ponent sector. The sector has now reached pre-Covid level production. Whilst demand is strong, there are head- winds as well. The semicon- ductor shortage, steep in- crease in raw material prices and their non-availability, shortage of containers and increasing freight costs could derail the recovery in the automotive sector,” Deepak Jain, President, Automotive Component Manufacturers Association of India (ACMA), told BusinessLine. “The next year looks prom- ising… It’s hard to forecast, but we expect FY22 to bring auto demand to more or less the 2018-19 level, the best year for most vehicle segments and the auto component in- dustry so far. Yes, there is con- cern about sucient availab- ility of semiconductors, and about the increasing price of steel, aluminium and other inputs, but the auto and the component industry are highly innovative and resili- ent,” said Ashok Taneja, MD and CEO, Shriram Pistons & Rings. Mostly imported Semiconductors are predom- inantly imported and hence have hardly any direct impact on revenues of domestic auto component players, said Hetal Gandhi. However, the global shortage of semicon- ductors has impacted pro- duction of specific models in the domestic passenger vehicle industry as the lack of this 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 a small share of the total auto- component production, es- pecially as demand from PV OEMs constitute less than 30 per cent of auto-component production. 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, as well as the prolonged delays in the delivery of raw materi- als are some other concerns. “Prices of steel, which alone accounts for 60 per cent of the raw material cost, wit- nessed an increase of 15-20 per cent in the quarter ended December 2020. In January this year, there was again an increase of 5-7 per cent,” said Jain. The upsurge in the cost of commodities and raw ma- terials add to the overall cost of products and adversely im- pact industry margins, he added. Production environment Rising input costs combined with OEMs’ cost-cutting pres- sure is something the suppli- ers are always challenged with and the uncertain pro- duction environment has only aggravated this, said Suraj Ghosh, Principal Ana- lyst — South Asia Powertrain Forecasts, IHS Markit. “But given the overwhelming re- sponse received by some of the new launches and re- freshes, the outlook for sup- pliers looks positive in the short term.” In Q3FY2021, credit rating agency ICRA revised its out- look on the auto-component industry from negative to stable, with a revival in de- mand across OEMs, aftermar- ket and exports market. “Our sample of 50 listed auto com- ponent suppliers registered over 20 per cent YoY growth in revenue during Q3FY2021, indicating the worst is be- hind us… ICRA expects that growth in FY2022 is likely to be 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 in the auto component sector