The growing deferments of capital expenditure by Indian companies indicate a prolonged slowdown in manufacturing, worsening India's economic woes. The major manufacturing companies including Tata Motors, JSW Steel, Hindalco and Hero MotoCorp have already announced their plans to go slow in new investments. Many of them have even refrained from giving revenue guidance as in the case of IT majors in the country.
L&T CEO and managing director SN Subrahmanyan recently said that the private sector capital expenditure is not going to come back in a hurry, as companies look to realign their revenue and cash flows before they start investing. After announcing the quarterly result, he said that L&T, to a large extent, is going to be dependent on public sector projects. These will be backed by multilateral funding from Japan International Cooperation Agency, World Bank, Asian Development Bank among others, Subrahmanyan added. "I don't see private sector revival at the moment," he said.
Tata Motors' auto division in India has reportedly dropped its capital expenditure by almost 56 percent to Rs 1,500 crore for the current year. "Conserving cash and prioritizing capex and targeting the investment spending in the right areas is our focus for the year," said CFO P B Balaji. The capex of Jaguar Land Rover, the British subsidiary, has been reduced 40 per cent to 2.5 billion pounds in the current year. The company has also planned for an aggressive cost reduction involving an additional capex and working capital saving of about Rs 4,500 crore.
Ratings agency CRISIL said that the steel demand is expected to decline by 13-15 per cent in this financial year. It will lead to the major industry players either delay or altogether shelve their capex plans, it added. The weak financial health and gloomy demand are expected to weigh on capex plans. The private steel manufacturing giant JSW Steel has already slashed its capital expenditure to Rs 9,000 crore from the earlier planned Rs 16,340 crore. With this, the capacity doubling plan of its plant in Dolvi will be delayed by six months.
That demand has collapsed and will take many quarters to come back is a given. Earlier L&T chairman AM Naik told Business Today that new capacity additions and infrastructure creation will not restart in the near future. "It will be a huge bottleneck in the country's economic growth," he said. Lack of new orders will affect engineering and construction companies. Until January, at least 60 per cent orders for infrastructure companies were coming from the government.
Aluminium manufacturing company Hindalco Industries, which posted a 43.2 per cent decline in consolidated profit to Rs 668 crore in the fourth quarter of 2019-20, has cut down capital expenditure by nearly 40 per cent to Rs 1,500 crore. It also decided to maintain the debt at the present level till the coronavirus crisis is over. Satish Pai, MD of the company said that the present strategy is to navigate through the crisis without compromising the long term strategic goals. "Hindalco had spent about Rs 2,300 crore last year. For Novelis, the capex has cut to $450-475 million, which is a reduction of 30-40 per cent," he said earlier. The company also switched to higher exports in April and May as domestic demand was weak.
Two-wheeler giant Hero MotoCorp has pared its capital expenditure - majorly in capacity expansion and renovation, except research and development - for the current fiscal to Rs 600 crore from Rs 1,000 crore in a move to cut costs and conserve cash.
UltraTech Cement has cut its capital expenditure budget to around Rs 1,000 crore due to the coronavirus pandemic, reports say. The company spent about Rs 1,500 crore in the last financial year. The work on its grinding unit in Cuttack, which was scheduled for commissioning in March 2021, has been slowed down, a report said.
Golden Tobacco (GTL), which sells a range of cigarettes including Panama, Chancellor, Golden's Gold Flake, said it has decided to defer all capital expenditure except those in advance stages.
Bharat Petroleum Corporation (BPCL), which the government wants to privatise, has scaled down its capital expenditure in the wake of reduced project activity and lower profitability. The company will now invest Rs 8,000 to Rs 8,500 crore, about 20 per cent less in the current financial year as capital expenditure. It spent around Rs 11,000 crore at a gross level in the last financial year. The capital expenditure was negligible when the country was in lockdown in April and May, said N Vijayagopal, Director (Finance) of BPCL.
The pandemic will delay the ongoing projects of Oil and Natural Gas Corp (ONGC). The company said it targets optimisation of capital and operating expenditure in this financial year. Lower petroleum and gas prices and the demand have hit the cash flow of the company badly.