Capex of top asset-owners may have hit five-year low

Ind-Ra says an immediate revival of private capex is unlikely

Capital expenditure by the top 500 asset-owning corporates (excluding banks and financial services) may have hit a five-year low, according to India Ratings and Research (Ind-Ra).

“Capex in FY15 may have nosedived to Rs 2.76 lakh crore-Rs 2.8 lakh crore (FY14: Rs 2.94 lakh crore; FY13: Rs 2.85 lakh crore), the lowest in the last five years,” India Ratings and Research, a Fitch Group Company, said.

The capex cycle of the top 500 asset owning corporates (excluding banks and financial services) may be close to bottoming out.

While further downside to capex is limited, an immediate meaningful revival of private capex  is unlikely, Ind-Ra added.

According to Ind-Ra, FY16 capex  may range between Rs 2.8 lakh crore and Rs 3 lakh crore, and the top 20 spenders may invest Rs 1.8 lakh crore-Rs 2 lakh crore in FY16.

In FY15, the top 20  spenders were responsible for 60 per cent of the capex of these 500 corporates. Outside the top 20 spenders, the capex may be limited to around Rs 1.1 lakh crore, mostly maintenance capex and essential upgradations. India Ratings goes on to state that while the capacity utilisation of these corporates are showing a marginal uptick, the revival of capex cycle will take time. 

“Ind-Ra estimates that while the capacity utilisation of these 500 corporates may have shown a marginal uptick in FY15, still the utilisation level continues to hover around a decade low,” the rating agency said.  Assuming eight per cent  growth in demand volume, it may take 24-36 months to revive capex cycle.

Post H2FY18, these 500 corporates may exhibit incremental annual capex in the range of Rs 40,000 crore-Rs 60,000 crore. 

However, if the growth in demand is assumed to be seven per cent, the revival will happen in 36-42 months, it added.