NBFC woes to de­lay in­vest­ment re­vival

Business Standard - - OPINION - AMRITHA PIL­LAY

In­dia’s pri­vate in­vest­ment is un­likely to pick up as re­cov­ery in ca­pac­ity util­i­sa­tion in the March quar­ter has made a turn­about. The new time­line for a re­vival has been pushed to 2019, ac­cord­ing to in­dus­try ex­perts and of­fi­cials. Ac­cord­ing to Re­serve Bank of In­dia (RBI) data, ca­pac­ity util­i­sa­tion was at 73.2 per cent in the June quar­ter, lower than 75.2 per cent in the March quar­ter.

The re­turn of pri­vate in­vest­ments in the coun­try is strug­gling with lack of funds and un­cer­tainty due to the ap­proach­ing elec­tions, said ex­perts. “We may not see a re­vival in the cur­rent year as non-bank­ing fi­nan­cial com­pa­nies (NBFCs) have taken a hit in lend­ing and banks may not have sub­sti­tuted the same. We need to wait an­other quar­ter to know a clear trend of util­i­sa­tion lev­els and the re­vival of pri­vate in­vest­ment cy­cle. There are few signs of re­vival when one looks at the bor­row­ing ac­tiv­ity. Ce­ment and steel are see­ing signs of re­vival, which is pri­mar­ily led by the real es­tate sec­tor,” said Madan Sab­navis, chief econ­o­mist at CARE Rat­ings.

Ce­ment com­pa­nies such as JK Ce­ment, Am­buja Ce­ments and Dalmia Bharat have an­nounced fresh ca­pac­ity ad­di­tion plans in the past year. The ce­ment ind us­try has started ex­pand­ing ca­pac­ity in a bid to in­crease mar­ket share de­spite the cur­rent de­mand-sup­ply mis­match.

The over­all ca­pac­ity util­i­sa­tion fig­ure crossed the 75 per cent-mark for the first time since the March 2016 ended quar­ter, RBI data shows. Not all com­pa­nies and in­dus­tries are, how­ever, lan­guish­ing be­low the 75 per cent ca­pac­ity util­i­sa­tion. “For some of the stronger com­pa­nies, such as ce­ment, met­als, pa­per and au­to­mo­bile, it is higher by around 10 per cent over the in­dus­try av­er­ag­ing at 80-90 per cent for sec­tors. Th­ese com­pa­nies have started to un­der­take ei­ther brown­field ex­pan­sions or rely on ac­qui­si­tions,” said Rahul Prithi­ani, di­rec­tor at Crisil Re­search. “A large-scale re­vival is pos­si­ble only af­ter elec­tions, as­sum­ing the de­mand en­vi­ron­ment con­tin­ues to im­prove,” he added.

Though clear in­di­ca­tion for a re­vival in pri­vate in­vest­ment is not yet vis­i­ble, ex­perts and of­fi­cials are cer­tain the sec­tors will be dif­fer­ent from the last cy­cle. “The form in which pri­vate sec­tor in­vest­ment will ar­rive will change. Ear­lier, it used to be lot of roads. Pri­vate cap­i­tal is shy of roads now,” says R Shankar Ra­man, chief fi­nan­cial of­fi­cer at L&T.

“Air­port or­ders are also pri­vate sec­tor cap­i­tal ex­pen­di­ture. Small por­tion of auto cap­i­tal ex­pen­di­ture is still hap­pen­ing. We do be­lieve given the tar­iff is­sue, trade war and firm­ing up of de­mand. The min­er­als and met­als space will see ex­pan­sion af­ter the cur­rent round of shop­ping for stressed as­sets is over,” he added.

Steel­mak­ers such as JSW Steel, Tata Steel and ArcelorMit­tal made a bee­line to pick stressed as­sets, which were up for debt res­o­lu­tion at the Na­tional Com­pany Law Tri­bunal, in the past six months.

Along with met­als, con­sumer fac­ing sec­tors such as fast mov­ing con­sumer goods (FMCG), au­to­mo­biles and real es­tate are wit­ness­ing bet­ter util­i­sa­tion.

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