Two-wheeler makers plan to resume capital expenditure plans in FY22

Two-wheeler makers are planning to resume their capital expenditure plans in FY22 as they see signs of recovery in demand after an almost year-long slump. 

This will come as a boost for the government, seeking private sector capex. With the automobile sector accounting for over 7.1 per cent of the country’s gross domestic product, there’s a lot riding on this industry, analysts believe.

“We plan to revive our capex cycle from FY22 and we estimate it to be in the range of up to Rs 1,000 crore,” Niranjan Gupta, Chief Financial Officer at Hero MotoCorp, the largest two-wheeler seller, said.

Hit by the pandemic, the company had pared its capital expenditure for the current fiscal to Rs 600 crore.

Hero’s move to increase capex coincides with the company reporting its highest-ever revenue for the quarter ended December 2020. According to the company’s head of sales Naveen Chauhan, the macro-economic factors signal that henceforward, the demand will sustain. “Opening up of schools and colleges will give a big push to urban demand,” Chauhan said.

However, industry executives and analysts pointed out that a major portion of the capex will be meant to improve research and development rather than adding additional capacity. The new investments will be primarily used for developing new products in the electrical vehicle segment and launching more premium vehicles, they indicated.

The company is trying to increase its share in the premium segment and launch an electric two-wheeler by early next year. “The future is electrification. Going forward, electric and developing premium products will be a big focus area for us,” Pawan Munjal, chairman and chief executive at Hero, had recently said.

For this the company had announced its intention of investing Rs 10,000 crore over the next few years, including investments on new manufacturing lines.

Rival Bajaj Auto had also recently announced that the company had lined up Rs 650-crore capex to set up a 1-million-unit per annum facility in Chakan, Pune. The new plant, which will produce the KTM, Husqvarna and electric two-wheelers, will take the Mumbai-based company’s production capacity to 2.2 million units per annum. This is over and above their regular capex plan, reflecting the company’s focus on the premium motorcycle segment and electric vehicle business.

Even Chennai-based TVS Motors said the company would do a capex of around Rs 500 crore in FY22 to develop new products and technology.

“Two reasons will drive investment in the auto sector this decade. One is capacity expansion. Our exports are growing. The second is a shift towards electric transportation era. All players will have to invest heavily here,” Venu Srinivasan, Chairman & MD at TVS Motors, said on Friday.

The company, during its recent meeting with analysts, had said that urban retail sales were returning to pre-Covid levels while rural demand was buoyant.