Rises only 2% from Q1, with cement, oil & gas, power, telecom all holding back.
India Inc’s spending on capital expansion has slowed further in the second quarter of the financial year.
There has been a 2 per cent sequential rise in the capital employed (CE) in the September quarter, compared to a 4.8 per cent rise in the June quarter over the March quarter. In absolute terms, CE has increased by Rs 26,365 crore, compared to Rs 53,600 crore in the first quarter.
The study is based on 388 companies that have provided their data on capital employed for the first and second quarters of the current financial year.
| THE BIG SPENDERS | |||
| Company |
Capital employed*
|
%chg | |
9-Sep
Change
42,577.24
8,968.88
26.69
88,672.70
5,089.50
6.09
44,164.44
4,770.99
12.11
16,941.02
2,529.67
17.55
61,715.68
2,151.95
3.61
74,897.32
-19,742.17
-20.86
-7,158.00
-3.24
12,926.00
-682.00
-5.01
11,572.05
-513.97
-4.25
1,673.61
-491.70
-22.71
(All figures in Rs cr; Change over quarter ended June 2009)
Interestingly, 300 companies in the sample have increased CE by Rs 58,507 crore, while the remaining 88 have cut their CE by Rs 32,142 crore.
The top five companies — Sterlite Industries, ONGC, Tata Steel, NTPC and Steel Authority of India (SAIL) — have a 41 per cent share in the capex increase. However, of these, only SAIL has utilised money for capital expansion, while the other four have kept this as unallocated assets. Reliance Communications, Reliance Industries, Bharti Airtel, Essar Oil and ITC all contributed to a 89 per cent decline in capex.
The slowing in capital expansion is clearly seen in the current financial year. Large sectors such as cement, metals, oil and gas, power and telecom have provided negligible funds in the second quarter for their capex plans. There are several large projects in oil and gas, steel and telecom sectors which have been completed, and if one notes the current environment in these areas, no fresh investment will come forward.
More, incremental sectoral allocation in the first quarter has been largely due to the utilisation of unallocated funds, as several big and mid-size companies completed expansions by using this money.
The telecom players, the biggest capital spender in recent years, have decided to slash their capex plans due to falling average revenue per user, as well as in minutes of usage. The world’s seventh largest telecom operator, Norway’s Telenor, which has acquired a 67.25 per cent stake in Unitech Wireless, has announced a Rs 3,500 crore reduction in its investment in India. Telenor had earlier announced an investment of Rs 15,500 crore for a period of five years.
Bharti Airtel maintained its capex expectation for FY10 at 10,000 crore, but indicated there is potential for some cutting in their tower business capex from Rs 5,000 crore to Rs 3,500 crore. Reliance Communications has projected a capex of Rs 10,000 crore, inclusive of a provision for cash outgo towards the upcoming auction of 3G spectrum. The company had earlier put out this figure after excluding 3G spectrum. Idea Cellular trimmed its capex by Rs 1,500 crore, to Rs 4,500 crore, on account of lower MOU growth.
The oil, gas and petrochemical giant, Reliance Industries, is planning to spend Rs 1,500 crore for a new petrochemical complex at Jamnagar. According to analysts at CLSA Research, it is difficult to identify transformational organic projects of the size Reliance needs. Analysts estimate the company will need to execute Rs 20,000-25,000 crore in projects annually to deliver 10 per cent annual profit growth. This will be difficult if it remains focused on new India-centric projects. Its organised retail and special economic zone (SEZ) projects have been slow to take off.
Larsen & Toubro, the engineering giant, has been quiet on capex spending in engineering and construction projects. An analyst at HSBC Global Research feels that over the next one to two years, the company’s order backlog will shift toward long-cycle capex (power sector). The company has reported a smart pick-up in order booking over the past three to four months, with major orders coming from the power sector. However, industrial capex is yet to show clear signs of revival, which poses a risk to order inflows for its engineering, procurement and construction division, as well as its machinery and industrial products division, says the analyst.
Ashok Leyland has maintained a capex outlook at Rs 2,000 crore for the current year and next year, for the new facility at Uttarakhand which will be commissioned by mid-January 2010. JK Tyres has lined up Rs 560 crore of capex that would be implemented over the next two to three years. Of this amount, Rs 300 crore is for setting up a new facility to make PV radials.
JK Lakshmi will invest Rs 1,200 crore for setting up a new project at Durg (Chhattisgarh) that will increase the company’s total production capacity by over 50 per cent. Besides cement, JK Lakshmi is putting in Rs 200 crore to expand its captive power generation capacity.
