‘Passenger vehicle segment may post 25% growth in FY22’ – The Hindu

Clipped from: https://www.thehindu.com/business/Industry/passenger-vehicle-segment-may-post-25-growth-in-fy22/article34200956.ece

Semiconductor shortage will remain a key challenge: ICRA

The passenger vehicle (PV) segment in India is expected to grow up to 25% in 2021-22, even as shortage of semiconductors will continue to remain a key challenge for the industry, ratings agency ICRA said on Tuesday.

“The Indian passenger vehicle (PV) industry is expected to post an impressive growth of 22-25% for FY2022, after a 2-4% de-growth in FY2021,” the agency said, adding that the growth would be on a lower base of Q1 FY2021, primarily due to industry slowdown and the pandemic impact.

Additionally, an expected pick-up in economic activity, improved consumer sentiments, resilient rural income sentiments (less impacted by the pandemic), healthy crop cycles and several government initiatives are likely to propel growth.

“Demand has remained strong post the festive seasons as both retail and wholesale dispatches witnessed recovery,” said Ashish Modani, VP, ICRA. “The industry clocked the best-ever volume during H2 FY2021, primarily driven by inventory restocking and pent-up demand,” he added.

“Also, as demand sentiments improved, discounts offered during the lean phase eased substantially. The industry’s outlook continues to remain stable,” Mr. Modani said.

In case the growth momentum sustained, the industry could surpass earlier peak volume of FY2019 in FY2022, ICRA said in a statement. The agency added that the semiconductor shortage was a key challenge in Q1 FY2022 as the automotive industry accounted for 12% of the global semiconductor demand. The stronger-than-expected recovery, along with supply disruption at a few manufacturing locations, had aggravated chip shortage issues and some OEMs have experienced the impact on production volumes, it said.

“Though some normalcy is expected from June 2021 onwards, the industry volume will be impacted during Q1 FY2022. India’s dependency on overseas suppliers for semiconductor is likely to continue over the next 3-5 years,” it added.

The research firm noted that industry capacity utilisation has been fluctuating from 50-55% in FY’20 to sub-50% in FY’21e and 55-60% in FY’22e.

“As for capex, industry’s total investment outlay is estimated at ₹28,000-33,000 crore during FY2022-FY2023; the incremental investments will primarily be for new product/platforms and emission/safety compliance. Investment could be accelerated depending on the incentive structure under the PLI Scheme. The VW Group is expected to invest ₹6,000 crore during FY2021-FY2023 period, primarily towards product development,” it said.

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