Despite the negative cash flows last year, state-owned enterprises aren’t holding back on their capex spends. Many are utilising the profits generated in the current year to add capacity, bridging the deficit with borrowings. With interest rates trending down, public sector undertakings are able to raise money at attractive rates.
Steel major SAIL, for instance, is on track to complete its R4,000-crore capex programme for the year, having spent R2,374 crore or well over 50% of the outlay in the first six months. That’s despite the company having generated negative free cash flows in each of the last three years.
The management has planned for a capacity expansion of 50% at a cost of nearly R40,000 crore. Post-capacity expansion, the firm will produce a more structural steel, a high-margin product.
NTPC has invested close to Rs 13,400 crore between April and September, nearly half the outlay envisaged for the year; the lack of free cash flows in each of the last three years hasn’t stopped the power producer from enhancing capacity. Kulamani Biswal, finance director, said recently the company had issued Rs 1,470 crore worth of bonds at around 7.5%. “We have also mopped up Rs 2,000 crore via Green Masala Bonds at 7.4% to fund solar and wind power projects,” Biswal said.
Even smaller PSUs like Container Corporation of India seem to be on course to meet their capex targets for FY17. CMD V Kalyana Rama is confident his firm will achieve the capex plan of Rs 1,150 crore. “We have completed about 40% of the work in the first six months,” Kalyana Rama said.
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Some other firms like oil marketing company BPCL are moving slowly, having spent just Rs 3,800 crore in H1FY17. While that is less than half the targeted Rs 13,000 crore, the management is confident spends will pick up soon. “Capex will pick up in the remaining two quarters and we are staying with the Rs 13,000-crore target for the year,” Panchapakesan Balasubramanian, director of finance, BPCL, said.