India Inc tightens purse strings amid hazy outlook

FIRMS ARE MAKING LARGE CUTS TO THEIR PLANNED CAPITAL EXPENDITURE AMID DWINDLING REVENUES

MUMBAI: Vipul Bajpai, founder of EVY Mobility, has delayed his plans of rolling out electric scooters by more than a year. It has been a rocky ride for the year-old company, even by startup standards.

Bajpai had put up a small assembly plant in Manesar, near Delhi, after incorporating the company in February last year, hoping to start selling the scooters by this year.

Since then, the situation has changed drastically. For Bajpai, demand for his products remains uncertain and susceptible to future shocks. “Our plans have taken a back seat for at least 18 months,” he said.

Like in the case of EVY Mobility, the pandemic has upended investment plans of thousands of small and big businesses that are grappling with economic uncertainty and vanishing demand. While capacity utilisation has been low for years now, firms have now begun making large cuts to their planned capital expenditure as they need to conthe serve cash amid dwindling revenues. With companies reporting a drop in March quarter earnings, they have started slashing discretionary spending, with some of them cutting capex by as much as 40%.

“This year, the focus for most companies is very much going to be on survival,” said Rahul Bajoria, chief India economist at Barclays. “You will see a pullback in discretionary spending from the corporate sector, whether it is investing in new manufacturing plants or new technology. A lot of those expenditures will be pushed back.”

Large Indian firms in the metals space—one of the largest contributors of private capex—have already announced plans to cut spending. JSW Steel Ltd, one of India’s largest steelmakers, slashed its total planned capital expenditure spend for FY21 from earlier forecast of ₹16,340 crore to about ₹9,000 crore, postponing work on long-term projects meant to nearly double its plant capacities.

“We don’t expect a V-shaped demand recovery in India. We see weak demand till September-October,” said MVS Seshagiri Rao, joint managing director and group chief financial officer, JSW Steel in a May 27 interview.

On Friday, aluminium and copper products maker Hindalco said that it would slow down some of its expansion plans for this fiscal, pushing work to the second half of the year instead of the first six months. The company has said it would postpone some of its less critical capital expenditure plans for after FY21. “We are focusing on preserving cash,” said Satish Pai, managing director, Hindalco Industries.

“We had spent ₹2,300 crore in FY19 and had planned to spend a similar amount in FY20. Now we’ve reduced the target to ₹1,500 crore,” he added.

These cuts come when private sector spending was already cooling down.

Malyaban Ghosh & Amit Panday contributed to this story.