Auto companies’ capex to rise by 30%

Automobile companies will increase their capital expenditure by at least 30 per cent to Rs 58,000 crore over the next two fiscal years to meet the rising demand as well as to meet the new regulatory requirements, says a report.

According to Crisil, passenger vehicle (PV) makers will account for about 70 per cent of this Rs 58,000 crore additional capex, followed by commercial vehicle manufacturers at 20 per cent and the balance by two-wheeler makers.

Anuj Sethi, senior director at Crisil, said about half of the Rs 58,000 crore will be to expand capacity to cater to growth in demand and the balance for new products and technology to conform to tighter regulations.

The OEM space is largely duopolistic with the top two players in each segment enjoying 60-70 per cent market share, reports PTI.

The top two players in the PV segment, Maruti and Hyundai, are operating at close to optimal levels and are even resorting to lowering exports to meet domestic demand, while leading players in other segments are operating at utilisation levels of over 70-75 per cent. Vehicle demand is expected to grow in most segments in high single digits till fiscal 2020, supported by rising disposable incomes and increasing industrial and rural activity, Sethi added.

New model launches and investment in product development, including electric vehicles will also be necessitated due to intense competition. Crisil expects around eight new major model launches in fiscal 2019 in the PV segment alone, compared with six in fiscal 2018.

Companies are pumping money into technology to ensure products conform to regulatory changes, including BS-VI emission norms, braking norms and crash tests, which would also take away a good portion of this additional capex. Despite sizeable funding requirements for capex in the next two years, the report expects credit quality auto companies to remain stable as they enjoy strong cash flows, good balance sheets as well as promoter support.