Capital expenditure (capex) is set to show double-digit growth in the current financial year if one expects the manufacturing sector to maintain the 15 per cent growth rate in capital employed (CE) recorded in the first quarter of 2010-11. The double-digit growth in the first quarter came after five quarters of single-digit growth.
The segment-wise CE numbers for the first quarter ended June hinted at 20-plus per cent capex growth for sectors such as automobiles, auto ancillaries, capital goods, cement, electronics, infrastructure, mining and power. Capex growth is expected to be better in steel, fast movng consumer goods, engineering, pharmaceuticals and sugar, chemicals, media, petrochemicals, textiles and telecom
Turnaround in the economy is likely to translate into sustained capex. High capacity utilisation in some key industries may further the upsurge. According to Edelweiss Research, the robust demand outlook and strong macroeconomic indicators are the key reasond behind capital expansion.
The trigger is cash surplus with the government through 3-G spectrum license fees and disinvestment corpus and routine public sector spending. The annual reports’ data for the 1,818 listed companies for 2009-10 show cash and bank balances of Rs 285,062 crore and investment in unquoted mutual fund schemes to the tune of Rs 103,216 crore.
| INDIA INC BETS BIG Capital employed by non oil cos in Q1 2010-11 | |||
| Rs crore | Capital employed qte ended | ||
| Juen 09 | 10-Jun | Change | |
| Sail | 39588.00 | 53744.43 | 14156.43 |
| Tata Motors | 37691.85 | 46735.78 | 9043.93 |
| Bharti Airtel | 29887.40 | 37616.90 | 7729.50 |
| Idea Celluler | 11216.56 | 18465.85 | 7249.29 |
| JP Associates | 17917.63 | 25108.94 | 7191.31 |
| Sterlite Ind | 19976.28 | 25855.79 | 5879.51 |
| Power Grid Corp | 45131.49 | 50611.49 | 5480.00 |
| NTPC Ltd | 33654.54 | 39060.59 | 5406.05 |
| JSW Steel | 19689.43 | 23141.35 | 3451.92 |
| Reliance Comm | 33796.20 | 37096.83 | 3300.63 |
| Hindalco | 13591.49 | 16641.91 | 3050.42 |
| Gail | 9946.12 | 12668.36 | 2722.24 |
| Tata Steel | 12926.63 | 14917.91 | 1991.28 |
| Essar Shipping | 8394.19 | 10194.46 | 1800.27 |
| GE Shipping | 10066.41 | 11162.90 | 1096.49 |
| Total | 795195.72 | 914271.18 | 119075.46 |
By the balance sheet data, listed companies in manufacturing and services sectors had spent Rs 193,125 crore on fixed assets in 2009-10, around 14 per cent lower compared to their spending 2008-09. The capacity expansion was seen in medium-sized companies in sectors such as auto ancillaries, alcohol, cement, garments, textiles and automobile tyres.
ACC, Grasim, J P Associates and UltraTech Cement increased cement capacity in 2010, along with relatively smaller companies such as Chettinad Cement, Dalmia Cement, Kesoram Cement and Shree Cement. Automobile giants Tata Motors and Ashok Leyland increased capacity in commercial vehicles and so did Tata Steel.
Capacity addition in oil & gas, power and metals, and a rise in the number of projects in the construction sector had accounted for the bulk of capex over the past two years. Most of these capacities were conclusions of initiatives undertaken prior to 2008. Telecom service providers accounted for only eight of spending, due to lower-than-expected volume growth and delay in government approvals for importing equipment.
A survey by Edelweiss Research to get a ground-level feel on capex spend in the near-to–medium term indicate showed 63 per cent of respondents incurring capex to enhance their market shares and gain competitive advantage over peers. This includes entities which are scaling up due to improvement in the business outlook. Interestingly, none of the entities are incurring capex only because of easy availability of funds or on technological innovation.
This is in sharp contrast to the response during the 2009 crisis, when many companies had postponed their capex plans due to the tight financial situation. Currently, a nominal nine per cent of respondents were diversifying into unrelated areas. This trend was witnessed only among construction companies and not surprisingly the diversification was towards power.
