Auto sector may spend Rs 17,000 cr on capex till FY21 despite slowdown

Projected capex will largely be towards BSVI transition, international expansion

Amid slowdown in the automobile sector, the combined capex of listed automakers and component manufactures is expected to be about Rs 17,000 crore in the current and the next financial years. Some of these companies brought down their initial capex estimates by 10-15 per cent.

The projected capex —based on Narnolia Research and investors call transcripts after major listed automakers and component manufacturers announced their Q2 results — will be largely towards BSVI transition, developing new products, and expansion in international markets.

India’s largest carmaker Maruti Suzuki has announced that it will end up spending about Rs 4,000 crore in FY20. "We will be in line with our plans. We have not changed any course in terms of our plans with respect to the medium-to-long term,” said Ajay Seth, CFO at Maruti Suzuki India.

 However, Tata Motors and Ashok Leyland will end up spending less than their initial plans. Tata Motors was initially planning to spend around Rs 5,000 crore, but now it will end up investing only Rs 4,500 crore.

P B Balaji, group CFO, Tata Motors during the recent investors call said: "Capex continues simply because we are in the midst of a BSVI investment phase… We need to be there and land this plane, so that (capex) continues. But we will be recalibrating our total capex this year close about Rs 4,500 crore (part of it will be spent in FY21), compared to the Rs 5,000 crore that we had originally planned.”

Ashok Leyland, which had originally planned capex of Rs 2,300 crore, is likely to end up spending around Rs 1,800 crore, even as it is looking at reducing it further by around Rs 200 crore. The company's capex — part of which is slated for FY21 —includes BSVI transition, modular programme and development of LCV products.

The CV industry has witnessed a 53 per cent decline in volumes in the second quarter of FY20. Ashok Leyland's management expects the demand to pick up on the back of good monsoon, improved freight rates and easing economic conditions. While passenger buses have seen stable demand, intermediate commercial vehicle (ICVs) witnessed a controlled decline. The tipper segment and LCVs are expected to see a revival in demand.

 While the first quarter of 2021 is expected to see a slower uptick with the new technology (BSVI) coming in, FY21 is expected to be strong. The management said it is looking forward to a strong fourth quarter of FY20 as the last quarter is traditionally a strong quarter for commercial vehicle OEMs.

 As far as two-wheelers are concerned, Royal Enfield has guided for a capex of Rs 700 crore for 2019-2020 towards new product development, R&D centre and capacity. TVS Motor Company gave capex guidance of around Rs 600 crore for FY 20, which is to be spent on BSVI transition, electric vehicles and new product development; it is planning to invest additional Rs 100-120 crore. Recently, the Tamil Nadu government gave nod for the company's Rs 300 crore brownfield expansion at Hosur.

"Q3FY20 is expected to remain challenging, while Q4FY20 is expected to show better growth led by improved demand sentiments," said the company.

 Apollo Tyres capex guidance for FY20 eased from Rs 2,700 crore to Rs 2300-2400 crore. Gaurav Kumar, CFO, said for the next financial year, the company capex estimate is Rs 1,700 crore but it may go down by Rs 300 crore. In Europe, the company plans to invest about ^40 million this year and ^25 million next year.

 CEAT’s management said project capex planned for standalone business is in the range of Rs 1,000-1,200 crore. Balkrishna Industries’ management said capex planned for FY20 is around Rs 600-700 crore, of which Rs 430 crore has already been spent in 1HFY20. For FY21, capex is expected to be around Rs 500-600 crore.

 Component makers, which have been badly hit by the slowdown, have decided to invest in a hope that the industry would revive. Some of them said they would invest only in essential projects and in new products, including non-auto.

 Motherson Sumi Systems has given a capex guidance of Rs 2,000 crore. The company is planning to do brownfield expansion in Serbia and greenfield expansion in Ras al Khaimah, the UAE.

Ramkrishna Forgings’ looking to put in Rs 480 crore in new projects; SKF India’ capex is around Rs  80-130 crore for FY20. Bharat Forge Limited capex for FY20 includes Rs 150-160 crore for India business.

 Gabriel India Limited, Lumax Industries, and Subros have guided for a total of around Rs 300 crore for new plants and products.