Global semiconductor shortage could last till first half of FY22, hurt automobile...

Global semiconductor shortage could last till first half of FY22, hurt automobile industry

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The current global semiconductor shortage, which has hit automotive companies across continents, could last through the first half of FY22 and disrupt output for an industry that is struggling to sell vehicles amid the episodic curbs on mobility.

While demand in the local market is expected to remain strong due to pent-up demand, consumer preference for personal mobility solutions and increased government spends on infrastructure, production could get affected in the first two quarters of the ongoing financial year due to the shortage of semiconductors, said Vikram Mohan, Managing Director at Pricol India.

“There is a huge shortage of semiconductors globally due to increase in demand for laptops, smartphones post the outbreak of the pandemic. This shortage is expected to linger on until September 2021,” said Mohan.

Sales could get affected by 15% in this period due to disruption in the supply chain.

Pricol is a Coimbatore-based supplier of diversified auto components like instrument clusters, sensors and switches, pumps and mechanical products, telematics solutions and wiping systems.

Despite challenges arising from shortage of semiconductors and the fresh surge in Covid-19 cases across the country, Pricol expects demand to stay strong and to grow business by 30% in the ongoing fiscal year.

“We hived off our operations in Brazil, Czech Republic and Mexico, right-sized our operations, invested heavily in product and process engineering the past couple of years. All these measures helped us in improving our margins. We were able to outgrow the market in Q2, Q3 and Q4 of the last financial year,” said Mohan.

P4

Pricol had a subsidiary in Spain that was the holding arm for step-down subsidiaries in Brazil (acquired in FY15), Mexico and Czech Republic (acquired in FY18). The companies were loss-making with combined losses across three step-down subsidiaries at Rs 105 crore in FY19 and Rs 89 crore in FY20, respectively. The three companies along with Spanish holding company have now been hived off with all liabilities addressed and investment of Rs 400 crore in these companies written off. Consequently, consolidated debt on books has reduced sharply from Rs 431 crore in FY20 to Rs 283 crore as of February 2021. Pricol reported revenues of Rs 1203.29 crore in FY20. Earnings for the last financial year are scheduled to be announced on May 26.

The company said it is at the close of an investment cycle and would not need substantial resources for capital expenditure over the next couple of years. Mohan informed the company would have to consider setting up a new manufacturing facility in the western part of the country if the demand momentum remains strong, but would not require significant resources for the same. Instead, it would continue to invest up to 4.5% of its net sales in research and development to be future-ready.

Work is already on to bring in components for electric vehicles in the next two years. Pricol has a net debt of Rs 235 crore on its books, which it aims to neutralise by that time to gain leverage for the next phase of growth in the company. Mohan said, “We will have our next set of products ready by 2023. We are not looking at any acquisitions but aim to grow organically.”

“With no more cash support towards erstwhile loss making entities & heavy capex cycle behind it (invested Rs 300 crore in FY18-20), we expect B/S deleveraging exercise to gather pace”, ICICI Direct Research said in a note dated April 1, 2021.



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