After two years of successive decline, capital expenditure (capex) by private sector non-financial listed companies grew 11.7% to Rs 2.72 lakh crore in FY17, data sourced from Capitaline shows. Aggressive bidding for spectrum licences by Bharti Airtel, along with new telecom entrant Reliance Jio, has helped the capex grow at a CAGR of 4.3% between FY13 and FY17. However, in the last three years, capex spend has declined by 2%. RIL and Bharti Airtel’s capex, which accounted for over a third of the total capex by a clutch of 239 private companies in FY17, rose by 64.6% and 15.5%, respectively. In fact, excluding these two companies, the actual capital investment by Indian listed companies declined by 2.6% in fiscal 2017. Companies with a minimum capital outlay of Rs 100 crore have been included in the sample. The country’s largest private refiner, RIL, said in its annual report that during FY17, it invested Rs 1.15 lakh crore— the highest ever in the corporate history of India. Aggressive investment in the telecom sector has deteriorated its leverage ratio, as the company reported its highest net debt-to-EBITDA ratio since 2002. The ratio has quadrupled in the five years to 3.05 in March 2017, Bloomberg data showed. The net debt-to-EBITDA of Bharti Airtel increased to 2.95 in FY17 from 1.81 in FY15.
Auto components major Motherson Sumi Systems, which has lined up capital expenditure of Rs 2,000 crore for FY18, had spent Rs 4,034 crore last year for acquiring Finland-based wiring harness specialist PKC Group. This also weighed on the overall increase in capex in FY17. While capital investment by Tata Motors remained flat in FY17, Mahindra & Mahindra and Maruti Suzuki saw their capital expenditures grow by 20.5% and 31.7%, respectively. If management commentary and analyst estimates are anything to go by, FY18 is unlikely to see any major improvement in capex.
Vedanta earmarked around $650-million capex during FY17 against the original guidance of $ 1 billion. However, Bharti Airtel raised its capex guidance for FY18 by around $775 million, to almost $4 billion, for expanding and strengthening its 4G network during the ongoing fiscal year.
India Ratings and Research observes that private sector investment is unlikely to pick up before FY20 due to weak domestic consumption demand, global overcapacity and negative impact of the GST on working capital. “In the event of continued low capacity utilisation, high debt or muted demand growth, capex activity may not revive even in the next seven-nine years,” the agency said in a recent report.