As outlook for economic activity brightens: India Inc building capex muscle for heavy lifting – The Economic Times

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Capacity expansion, deferred capex from last year and investments driven by the government’s production-linked incentive scheme will be the three key capex drivers, experts said.

From steel and cement to consumer electronics and electric vehicles, Indian companies have drawn up extensive capital expenditure plans for this fiscal year, as plants are running at near-full capacities and they expect the pace of economic activity to pick up.

Capacity expansion, deferred capex from last year and investments driven by the government’s production-linked incentive scheme will be the three key capex drivers, experts said.

Companies such as ArcelorMittal Nippon Steel, Vedanta, Hindalco, Grasim, Ceat and Mahindra & Mahindra have significantly increased their capex plans for FY22, compared with the preceding years.

“In today’s time, every passing day is a lost opportunity if we do not have enough capacity,” said Dilip Oommen, chief executive of ArcelorMittal Nippon.

The company has lined up an investment of Rs 50,000 crore to double its steel production capacity at Hazira, Gujarat, to 18 million tonnes.

An ongoing commodity super cycle — or a period of excess global demand — is driving capacity addition at metals companies, which have increased exports since last year.

In other sectors, companies that had suspended or gone slow on capex during the first wave of the pandemic are now confident of investing despite the ongoing deadlier second wave, as they expect a repeat of last year, when demand returned, even with a pent-up effect for many, as soon as the situation started improving.

Favourable factors such as low interest rate, availability of sufficient capital in the system — both internally, due to better cash flows and externally, from banks and the capital markets — and robust global demand are also aiding capex across industries, said experts.


Commodity Super Cycle
“The commodity boom is an important factor because it really moves the needle in terms of the quantum of capex, given that the sheer size of investment by these core sector companies is much larger,” said Vinod Karki, head of strategy at ICICI Securities.

Tata SteelNSE 3.55 % has allocated around Rs 7,500 crore for India growth in the ongoing fiscal. That is nearly 70% of its planned Rs 11,000-crore global capex.

“…Better performance in FY21 has enabled us to continue critical capital expenditure focused on India,” Tata group chairman N Chandrasekaran wrote in a letter to Tata Steel shareholders, which was released on Thursday along with the company’s annual report.

Rivals JSW Steel and Jindal Steel & Power have also announced capacity expansion plans.

Cement makers are expected to add 55-60 million tonnes per annum of manufacturing capacity over the next three years, as per Crisil Research. India’s cement manufacturing was around 500 million tonnes in FY20.

Market leader UltraTech has announced an investment of Rs 5,477 crore towards capacity expansion, while Dalmia Bharat managing director Puneet Dalmia told ET last month that the company was planning to invest close to Rs 5,000 crore.

Auto & New Sectors

In the automotive industry, Mahindra has lined up investments of Rs 12,000 crore over three years, while rival Tata Motors plans to invest Rs 3,000 crore this fiscal year, both with a focus on electric vehicles.

The automotive industry, however, has a glut of manufacturing capacity and capex will largely be guided towards products, plant maintenance and new technologies.

The government’s production-linked incentive scheme is expected to trigger capex of Rs 2-2.5 lakh crore, which should potentially be spent over the next 18-24 months, given it’s a time-bound scheme, said Isha Chaudhary, director, Crisil Research.

Investments in new sectors such as data centres, telecom infrastructure, renewable energy, reducing carbon footprint and electric vehicles have also been significant, experts said.

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