Longer lockdown will badly hurt auto component clusters in NCR and Pune: report

According to Crisil, passenger vehicles and two-wheelers will be particularly impacted since these two clusters are major source of components for these clusters.
By : PTI
| Updated on: 24 Apr 2020, 08:50 AM
The Indian auto industry is now staring at a severe and prolonged disruption due to domestic and global lockdowns and supply chain interruptions. (File photo)
The Indian auto industry is now staring at a severe and prolonged disruption due to domestic and global lockdowns and supply chain interruptions. (File photo)
The Indian auto industry is now staring at a severe and prolonged disruption due to domestic and global lockdowns and supply chain interruptions. (File photo)
The Indian auto industry is now staring at a severe and prolonged disruption due to domestic and global lockdowns and supply chain interruptions. (File photo)

The Indian automobile industry, already dented by a protracted slowdown before the Covid-19 pandemic struck, is now staring at a severe and prolonged disruption due to domestic and global lockdowns and supply chain interruptions, a report said on Thursday.

Currently, India sources 80-85 per cent of components for all vehicle segments domestically, mainly from clusters such as the National Capital Region (NCR, including Gurgaon, Manesar, Faridabad and Greater Noida), Pune (including Chakan, Talegaon and Ranjangaon) in Maharashtra, Mysuru in Karnataka, and Sriperumbudur and Hosur in Tamil Nadu.

The rest is sourced through imports.

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"If rising Covid-19 infections lead to the lockdown being extended again in NCR and Pune clusters, there would be a material disruption in component supplies to vehicle makers - both sourced locally and imported," Ajay Srinivasan, director at rating agency Crisil Research, said.

"Any extension of lockdown would dramatically increase the sourcing risk for products such as cast engine parts and transmission drives because major capacities are located in the Pune and Delhi-NCR belts. Passenger vehicles and two-wheelers will be particularly impacted since these two clusters are their major source of components," he added.

(Also read: Why Maruti may not open Manesar plant yet despite permission)

According to Crisil, while tractors, which have medium-to-high dependence on NCR and Tamil Nadu, also face supply risk, the commercial vehicles are unlikely to be affected much because they source across clusters.

As for imports, India is dependent on China for critical components such as electronic control chips, engine control units and sensors.

If logistics between the two countries remains disrupted for longer, it may translate into higher procurement costs due to airlifting, the rating agency said in its report.

Also, imports of engine components and drive transmission from the US and Germany are likely to be adversely impacted if manufacturing in these regions takes time to bounce back.

For other components, there is a moderate dependence on imports. These include alloy wheels, which are mostly imported from countries in south-east Asia and China, it said, adding the two-wheeler players dependent on such imports could be affected.

Going beyond these counts, logistics is also expected to cause some anxiety for vehicle makers, which mostly use the JNPT, Chennai and Mundra ports, and have about 95 per cent of goods transported from ports to manufacturing plants through roadways, according to the report.

"Congestion following slower clearance of goods at ports stemming from labour shortage and lack of significant uptake in export volumes are expected to push up shipping freight rates, and also extend the turnaround times via road. This will drive up the cost for supply chains in the short term," said Hemal N Thakkar, associate director, Crisil Research.

First Published Date: 24 Apr 2020, 08:50 AM IST
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