Private capex spend may be up to Rs 3 tn in FY16: Ind-Ra

The capital expenditure (capex) spending by private corporates in India is estimated to be between Rs 2.8-3 trillion in FY16, slightly up from Rs 2.76 -2.8 trillion in FY15, according to a rating agency.
The private capex cycle may revive after 24-36 months or earlier if Government gives a mega push to infrastructure sector, India Ratings and Research (Ind-Ra) said here today.
The capex cycle of the top 500 asset owning corporates (excluding banks & financial services) may be close to bottoming out. While further downside to capex spending is limited, an immediate meaningful revival of private capex spending is unlikely, it said.

The rating outfit estimated that the capex spending in FY15 may have nosedived to Rs 2.76-2.8 trillion, the lowest in last five years. The capex spend may range between Rs 2.8-3 trillion in the current fiscal.
The top 20 spenders may invest Rs 1.8-2 trillion in FY16 as against Rs 1.67 trillion in FY15. These top 20 were responsible for 60 per cent in FY15 (FY14: 59%, FY13: 52%) of the capex spending of the 500 corporates.
Outside the top 20 spenders, the capex spending may be limited to around Rs 1.1 trillion, mostly maintenance capex and essential upgradations, Ind-Ra said.

"Factors such as subdued commodity prices and capacity utilisation levels close to decade lows provide limited motivation to private corporates to take up capex. The high leverage of a large number of corporates may limit their ability to take up even normal maintenance capex," it added.

Past capex spending trends suggest that heavy capex spending usually starts when capacity utilisation closes in towards the 90 per cent level.
The rating agency estimated that while the capacity utilisation of these 500 corporates may have shown a marginal uptick in FY15, the utilisation level continues to hover around a decade low. Assuming 8 per cent growth in demand volume, it may take 24-36 months to revive capex cycle.

Three sectors -- oil & gas, metals & mining and power -- typically constituted 50-60 per cent of the total annual capex spending of the top 500 corporates and exhibited growth of 15-30 per cent.
Low commodity prices and a high level of uncertainty about their revival may discourage most players, who are substantial contributors to private capex spending, from taking up large spending, Ind-Ra said.
PSUs in the power and oil & gas sectors are likely to continue with a steady level of capex spending. Sectors such as auto and cement are likely to exhibit low single digit growth over the next 12 to 24 months, it added.