Unlisted companies adding capacity at faster clip than listed peers

The concluding part of the series looks at the financials of unlisted firms and examines capex trends

Unlisted companies are adding capacity, in the form of factories and much else, faster than their listed peers.

 

Growth in their net fixed assets in 2023-24 (FY24) was 7.5 per cent, according to numbers from the Centre for Monitoring Indian Economy (CMIE).

 

This is higher than the 6.4 per cent seen for listed companies (chart 1).

 

The data is based on 4,231 unlisted and 3,575 listed firms, all in the non-finance category.

 

The unlisted company data is released with a lag. The December-end figures used here represent roughly one-fifth of the number which is typically available in the CMIE database once all the results are in. They can be considered broadly indicative of the trend.

 

Net fixed assets represent the value of machinery, equipment, and other similar assets after accounting for depreciation. A rise in net fixed assets can mean that companies are increasing their productive capacity.

 

Many new-age sectors that are seeing investment may not have reached sufficient scale or maturity to consider listing yet, even as more traditional sectors face demand issues, leading to limited capacity addition.

 

This could be one of the reasons that unlisted companies have outdone listed ones, suggested multiple experts.

 

Capacity utilisation remaining stuck in the 75-76 per cent range, low confidence due to global macro and geopolitics, and a higher cost of funds remain a challenge at the margin, according to Sachchidanand Shukla, group chief economist at Larsen and Toubro. But a number of companies that are seeing incremental investment in the current environment are often in cutting-edge sectors like semiconductors, batteries, or solar power, he said. 

 

Acquisition is another way some companies would be looking to add capacity, said independent market analyst Ambareesh Baliga, but broad-based capital expenditure would pick up once the demand situation improves, according to him.

 

“We are hopeful that it should happen in the first quarter or second quarter of FY26,” he said.

 

Consumer goods, electricity, and services (other than financials) are among the key drivers of the increase. Each of the sectors mentioned above saw 8-11 per cent growth on a year-on-year basis. Air transport and allied services saw a 58.3 per cent rise in net fixed assets annually, driven by a booming aviation market.

 

Construction and real estate companies in the unlisted space have also outpaced their listed peers (chart 2).

 

Capital work in progress shows the better performance may be sustained. Unlisted companies have recorded capital work in progress of 6.9 per cent compared to 0.3 per cent seen for listed companies. Capital work in progress is investment made in fixed assets which are not yet ready for use (chart 3).

 

Fast-moving consumer goods company Nirma saw its net block rise 121 per cent to over Rs 11,000 crore in FY24. Air India’s net block was up 48.8 per cent to Rs 48,794 crore, and Amazon Data Services saw its net block increase by 12 per cent to Rs 18,127.7 crore. These are among the key companies for which data was available on Capitaline. Some of this may also reflect companies acquiring other entities to fuel growth. The Nirma group, for example, completed the acquisition of Glenmark Life Sciences in March last year.