Auto, oil and gas sectors are leaders in capital expenditure.
India Inc’s appetite for growth continues unabated, but at a slower pace, with spending on capital expansion and investments rising a healthy 21.6 per cent in the financial year 2008-09, compared with 38.5 per cent in 2007-08. In absolute terms, capex spending has risen by Rs 228,000 crore, despite declining profits and a 37 per cent decline in fund flow from financial markets in 2008-09.
The capital-intensive sectors of India Inc do not find the current environment a deterrent to push ongoing expansion and so they continue with capex plans. The study looks at 323 listed companies whose capex spending data for 2008-09 is available. The sample is reasonably representative, as it accounts for half of the capex spent by the corporate sector in 2007-08.
The automobile sector leads the growth rate chart with a 66 per cent rise in capex spending, thanks to Tata Motors which invested Rs 12,336 crore for acquiring Jaguar Land Rover. Oil and gas led the growth in absolute terms, accounting for a fourth (Rs 56,529 crore) of total capital spending. Reliance Industries leads, spending Rs 36,927 crore, mostly for expansion of oil & gas and the petrochemical business.
The telecom sector continues its expansion drive, with Bharti Airtel, Idea Cellular and Reliance Communication (RCom) together investing Rs 39,480 crore (up 43.7 per cent) on expansion of mobile, broadband and wireless services. RCom spent Rs 13,390 crore more on wireless services and around Rs 5,000 crore on global and broadband services. Bharti spent Rs 8,533 crore and Idea spent Rs 6,800 crore on mobile services.
The companies’ thrust on generating power for captive consumption and for distribution increased substantially, with an investment rise of Rs 22,633 crore or 44.2 per cent. NTPC, Tata Power and Reliance Infra, as well as steel and infrastructure firms such as Jindal Steel & Power, GMR Infra, GVK Power & Infra and Lanco Infratech are putting fresh capital in power projects.
The capital goods and engineering sector pumped in Rs 21,172 crore (up 38.8 per cent), with Larsen & Toubro and Jaiprakash Associates investing Rs 9,000 crore each. With rising demand and prices, cement firms, including Grasim, UltraTech Cement, Dalmia Cement and Binani Cement, together spent Rs 7,015 crore on expansion of capacity.
The consumer goods companies, including Hindustan Unilever and ITC, have pumped fresh capital in personal care and FMCG products. Automobiles, auto ancillaries, mineral, pharma, sugar and textiles firms have not done appreciable capital expansion.
According to Nomura Financial Advisory and Securities India, though the global sectors, such as steel, petrochemicals and metals, form a large percentage of the capex, these sectors will see slowdown in capex spending when global overcapacity emerges. Cement, autos, and shipping, among others, will also witness reduced capex, going forward. There are several large projects in India’s oil & gas (especially in the refining area) sector, which are near to completion and given the current environment, we believe investment in this sector will be cut.
The capex boom of the past three years has been a bit different from the mid-90s expansion. The mid-90s capex cycle was driven largely by domestic capacity creation, this time capital was spent on a combination of domestic capacity creation and domestic and overseas acquisitions. In fact, mergers and overseas acquisitions hit record levels in 2007-08.
BG Shirsat / Mumbai July 10, 2009, 0:31 IST
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