India Capital Expenditure Survey 2016-2017

By Raman Ganapathiraman

ARC Report Abstract

Executive Overview

A company incurs capital expenditure (CapEx) – the capital utilized to buy fixed assets or to add to the value of existing fixed assets – to acquire or upgrade physical assets on plant and machinery, land and buildings, property, and such others. In this periodic report, ARC Advisory Group look at a number of different manufacturing industries to identify trends in the India capital expenditure.

We calculate CapEx in two separate segments: based on the money spent on acquiring and upgrading total fixed assets, and on the money spent on acquiring and upgrading the plant and machinery.

India Capital Expenditure – Exclusively India

ARC also publishes a global CapEx report (ARC’s Capital Expenditure Report) focused on industries for all world regions including North America, EMEA, Asia, and Latin America. However, ARC’s India capital expenditure report focuses exclusively on India’s capital expenditure analysis and includes the CapEx trends for leading industries in the country, such as automotive, cement, chemical & petrochemical, electric power, metals, oil & gas and refining, food & beverage, and pharmaceutical.

Industrial companies are seizing the present growth opportunity that India offers. Companies are building best-in-class industrial facilities to meet the growing needs of the country’s expanding consumer class. Major investments have been planned for infrastructure development that would in turn push the domestic steel companies to increase production and plant capacity. The plan for expansion and upgrades of refineries to meet the BS norms for vehicle fuels is also underway. There are some sectors, like power generation and cement, that are burdened with overcapacity and idia capitalenditureindiacapex.JPGunderutilization of assets. However, in the long run, the rise in domestic demand will increase the value creation through these assets. On the infrastructure front, government has allocated huge investments for building roads, railways, airports, and ports; and companies are likely to rev up their capacity expansion activities to meet domestic demand in the coming years. According to ARC Advisory Group’s India CapEx Survey 2016, capital spending as a percentage of revenue is relatively high in the cement, chemical, electric power and metals industries in India. On average, while the electric power industry spends 28 percent of its revenue on CapEx, metals industry spends 14 percent of its revenue on CapEx. Cement and chemical sectors spend more than 10 percent of their revenues on CapEx.

The overall CapEx in India has been declining since 2011, and a break in this trend was observed during 2013- 2014. The structural reforms in the form of demonetization and GST implementation in late 2016 and mid of 2017, respectively, have led to a temporary and short-term dip in industrial activities. India has nearly overcome this disruption, and is expected to sustain the growth momentum going forward. Moreover, gains from GST and other structural reforms, combined with low oil prices will contribute towards the country’s growth.

Table of Contents

  • Executive Overview

  • CapEx Trend by Industry

    • Automotive

    • Cement

    • Chemical and Petrochemical

    • Electric Power

    • Metals

    • Oil & Gas and Refining

    • Pharmaceutical

    • Food & Beverage

  • Recommendations


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