Cos scale up capex plans post Q1 boost
Metals, cement and specialty chemicals are leading the capital spending spree
MUMBAI: Indian companies are boosting their spending budgets, drawing confidence from the swift rebound in demand after the deadly second wave of the pandemic.
Analysts expect the private capex cycle to see a significant upswing after the lifting of the regional lockdowns. Companies in the metals, cement and specialty chemicals are leading the capital spending spree, the analysts said.
Private sector capex has remained soft for years now, barring spending by a few large companies. Last year’s coronavirus outbreak further depressed India Inc.’s plans to spend on increasing capacity as demand for goods plunged.
Capex plans are back on the table, with capacity utilization of small and medium enterprises rising to 70-80%, said Avneesh Sukhija, an analyst at BNP Paribas.
According to Sukhija, producers of iron, steel and cement, and a few other sectors such as specialty chemicals and logistics, have either already started spending on capacity expansion or are budgeting funds for them after deleveraging their balance sheets. “The telecom sector should also see more capex if operators receive regulatory approval to roll out 5G services,” said Sukhija.
The Reserve Bank of India (RBI) highlighted the demand growth in the months following the second wave, adding to the optimism. “Urban demand is likely to accelerate, with the recovery in manufacturing and non-contact intensive services, the release of pent-up demand and the quickening of the pace of vaccination,” RBI governor
Shaktikanta Das said on Friday. “This is corroborated by encouraging movements in several high-frequency indicators, viz., registration of automobiles, electricity consumption, non-oil, non-gold imports, consumer durable sales and hiring of urban workers.”
RBI’S latest consumer confidence survey also suggests that year-ahead consumer sentiments returned to optimistic territory from historic lows. Das said that the June quarter earnings indicate that corporates have been able to maintain healthy growth in sales, wage growth and profitability. This will support the aggregate disposable income of consumers.
Among companies that have announced new spending plans include JSW Paints, a part of the JSW group. It plans to invest ₹750 crore over the next three years to expand operations and become a pan-india player.
After reporting its fiscal first-quarter earnings, Tata Communications said it will increase capital spending to $250 million (₹1,855 crore) for the year to March 31, driven by new orders and strategic capex. The company’s capital spending was at ₹1,420 crore in the previous year.
Chemical maker Deepak Nitrite’s subsidiary Deepak Phenolics plans to invest ₹700 crore in the downstream operations of phenol and acetone to make solvents in India. Rival specialty chemicals maker Aarti Drugs Ltd announced a capex of nearly ₹600 crore. The capex plan is spread over six projects, and the company intends to finish the first phase in 18-24 months.
Cement makers Orient Cement and Ramco Cement are also ramping up their spending. Orient Cement is expanding its capacity to 11.5 million tonnes per annum (mtpa), with an estimated project cost of ₹1,600 crore. Ramco Cement spent ₹400 crore in the fiscal first quarter and planned to spend an additional ₹600 crore in the rest of the year.
State-run Hindustan Petroleum Corp. Ltd and Indian Oil Corp. Ltd have also announced higher capex. Hindustan Petroleum expects to spend as much as ₹15,000 crore annually, higher than the annual average of ₹9,750 crore over FY17-21. The capex plan for Indian Oil is at ₹28,500 crore this fiscal. Analysts expect capex revival in India to be aided by marquee government projects such as the bullet train, highways and urban infrastructure.