India Inc's FY22 capex rises 9.1% YoY but lags pre-Covid growth

Corporate India’s investment in assets, such as plants, equipment, land, buildings, and acquisitions, grew 9.1 per cent year-on-year (YoY) in FY22, faster than 7.4 per cent YoY growth in capex in the previous year. Still, average capex growth in the past couple of years was significantly slower than that during the preceding two years in the pre-pandemic period. 

The rise in corporate assets, also called gross block, was largely led by top companies and industry leaders; small and medium firms lagged in capex terms. The smallest 25 per cent of the listed firms (in terms of revenue) reported only 3.1 per cent YoY growth in gross block in FY22 -- not much faster than 3 per cent YoY growth in capex in FY21.

The listed companies’ combined cumulative investment in fixed assets or gross block rose to Rs 72.5 trillion by the end of FY22, up from Rs 66.43 trillion a year ago and Rs 53.64 trillion at the end of FY19.

The analysis is based on a constant sample of 821 non-financial companies which are part of the BSE500, BSE Midcap and BSE Smallcap universe. The number excludes listed subsidiaries of listed holding and operating companies in the sample to avoid double counting. 

When looked at the past four years, the combined gross block of the 821 sample companies grew 8.3 per cent on average in FY21 and FY22, against 14.3 per cent average growth between FY19 and FY20.

The incremental growth in capex or gross block in FY22 was largely driven by a handful of big companies in sectors, such as telecom, oil & gas, steel and power.

The top 10 biggest spenders together accounted for 56 per cent of all corporate capex in FY22, led by Reliance Industries (RIL) which alone accounted for 17.8 per cent of all corporate capex during the period under review. RIL added Rs 1.078 trillion to its gross block last financial year, against Rs 6.06 trillion worth of fresh capex by all non-financial listed companies in Business Standard’s sample. Expenditure by its telecom unit (Reliance Jio) and organised retail arm (Reliance Retail) accounted for the majority of RIL’s capex.

Other companies with large capex in FY22 included JSW Steel (Rs 41,142 crore), Bharti Airtel (Rs 39,145 crore), NTPC (Rs 35,413 crore), Bharat Petroleum Corporation (Rs 24,987 crore), Power Grid Corporation (Rs 21,228 crore), Adani Enterprises (Rs 20,658 crore), ONGC (Rs 18,479 crore), and Wipro (Rs 15,623 crore).

In all, the top 25 per cent of the companies (in terms of revenues) together added Rs 5.55 trillion to their gross block, accounting for 91.6 per cent of all corporate capex last financial year. In contrast, the smallest 25 per cent of the companies (in terms of revenues) added only Rs 3,351 crore to their gross block, accounting for less than 0.6 per cent of total capex in last financial year.

Last week, Union Finance Minister Nirmala Sitharaman ticked off corporate India for lack of fresh spending on new projects and capacity expansion despite a sharp surge in corporate profitability in FY22 and a slew of government incentives, such as a cut in corporate taxes in September 2019 and production-linked incentive (PIL) scheme for fresh investment in manufacturing sectors.

But according to analysts, corporate capex is more dependent on capacity utilisation than short-to-medium-term changes in corporate profitability. “There has been a sharp jump in corporate profitability and return on capital employed in the past two years but capacity utilisation or revenue-to-assets ratio remains well below the pre-pandemic level, hinting at a lot of spare capacity in the corporate sector,” said Dhananjay Sinha, head research and chief strategist, Systematix Group.

The revenue-to-assets ratio for the 821 in our sample increased to 95.1 per cent in FY22, from 77.5 per cent in FY21, but it was lower than 96.6 per cent in FY19. The ratio used to be 100 per cent and higher prior to FY15.

The ratio may again decline in FY23 as energy and metal prices ease from their highs, hitting revenues of oil & gas and metal companies.

The external demand environment for India Inc, according to analysts, has worsened with a sharp slowdown in India’s merchandise export growth. Merchandise exports were up just 1.9 per cent year-on-year in August 2022, showing a sharp slowdown from 41.7 per cent YoY in FY22.