Capex slows down to a crawl as India Inc faces surplus capacity, over-leveraged balance-sheets problems

By: and | Published: April 3, 2017 7:03 AM

With surplus capacity in the economy at close to 25% and corporate balance sheets still over-leveraged, the pace of capital expenditure (capex) remains slow.

economy, corporate balance sheets, India Inc, Capex slows down, CapexWith surplus capacity in the economy at close to 25% and corporate balance sheets still over-leveraged, the pace of capital expenditure (capex) remains slow. (Source: Reuters)

With surplus capacity in the economy at close to 25% and corporate balance sheets still over-leveraged, the pace of capital expenditure (capex) remains slow. Between April and September, public sector undertakings (PSU) are estimated to have invested close to R1.03 lakh crore, data sourced from government indicates. That’s well short of the planned spend of R3.98 lakh crore for FY17. The top ten private sector companies had proposed an outlay of close to R2.5 lakh crore. While Reliance Industries spent most of the R1.7 lakh crore it had planned to, the rest of the companies spent less than they had intended.

Axis Capital estimates that corporate capex plans had fallen by 5% in FY16. Going by the commentary from managements, spends in FY17 have been muted. Data from CMIE shows around R44,000 crore worth of projects were either stalled or abandoned in the nine months to December 2016.

Tata Steel, for instance, had till end December, spent less than 60% of the targeted capex of R9,500 crore;the lowest outlay was the lowest in several years. Koushik Chatterjee, Group ED (Finance and Corporate), said capex would fall short of guidance due to delayed regulatory approvals. Also, some spends intended at the Kalinga Nagar plant would be postponed, Chatterjee said. At JSW Steel too, FY17 will end with a capex of R4,300 crore — the lowest since FY12. And at Bharti Airtel, capex this year will fall slightly short of the guidance of $3-3.2 billion, Nilanjan Roy, CFO, recently said.

Himanshu Kampania, MD, Idea Cellular said recently the telco’s capex outlay in FY17 would be smaller than than the 18% to 22% of revenues. Tata Motors is estimated to have spent around R3,500 crore for FY17, slightly higher than FY16’s R3,000 crore. Nevertheless, this would be smaller than the projected spend of R4,000 crore, Group CFO C Ramakrishnan, indicated.

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Private sector capex on steel and cement had nosedived between FY13 and 16 as global overcapacity drove down prices. Loans sanctioned for project finance shows a downward trend. While in FY13 Rs 75,000 crore was sanctioned for the power sector, this fell to Rs 54,000 crore in FY16. Similarly, the amount sanctioned for the metals sector was Rs 55,000 crore in FY13 but this dropped to Rs1,400 crore in FY16.

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