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India Inc's spending on capital expansion is expected to get slower in the current financial year, considering a 4.8 per cent sequential rise in the capital employed (CE) of 580 companies observed in the first quarter.
In absolute terms, the CE has increased by over Rs 53,000 crore (Rs 530 billion) as compared to a rise of Rs 250,000 crore (Rs 2,500 billion) in the financial year 2008-09, shows the data provided by Capitaline Plus.
Reliance Communication (RCom) accounted for more than a third of the capex of the 580 companies put together. The top six companies -- RCom, Oil & Natural Gas Corporation, Jaiprakash Associates, Indian Oil Corporation, Steel Authority of India and NTPC -- shared more than two-thirds of the capex, indicating fresh spending on this is not on this year's horizons for a large number of companies.
Several big capex spenders of the past such as Larsen & Toubro, Suzlon Energy, Reliance Industries, Essar Oil, Sterlite Industries, Grasim Industries and Hindustan Zinc have reported a modest 4-9 per cent increase in capital employed, mostly in the form of unallocated assets and other assets. BHEL, which increased CE by 25 per cent over March 2009, has parked the entire increase of Rs 2,000 crore (Rs 20 billion) in unallocated assets.
The slowdown in capital expansion is clearly seen in the current financial year. Large sectors such as cement, metal, oil and gas, power and telecom have provided negligible funds in the first quarter for their capex plans. There are several large projects in oil & gas, steel and telecom sectors which are nearing completion, and if one notes the current environment in these areas, oil and gas, metal and telecom sectors, no fresh investment will come forward.
More, incremental sectoral allocation in the first quarter has been largely due to the utilisation of unallocated funds, which declined by Rs 42,000 crore (Rs 420 billion) as several big and mid-size companies completed expansions by using this money. With no major capex plans in hand, most companies parked funds in the 'others category', which increased by Rs 10,000 crore (Rs 100 billion). Others have returned their short-term loans.
Idea Culler has reduced its capex size by Rs 1,560 crore (Rs 15.60 billion) on completion of an ongoing mobile services expansion plan. The company has returned a short-term loan of Rs 1,700 crore (Rs 17 billion), its spokesperson said. The capex size of Aditya Birla Nuvo declined by Rs 1,262 crore (Rs 12.62 billion), as the company completed investment in telecom and returned money from unallocated assets.
Kishor Shah, chief financial officer of Balrampur Chini, said the company has returned debt on completion of expansion. EID Parry, Dwarikesh Sugar, Mawana Sugar and Simbhaoli Sugar have completed their expansion, shown in the decline in capex in the sugar segment.
Going forward, the likely capex of Idea Cellular for 2009-10 is down to Rs 5,500 crore (Rs 55 billion), from the revised one of Rs 6,000 crore (Rs 60 billion). This capex will cover expenses on all new service area launches and the existing service areas for Idea and Spice. Bharti Airtel has reaffirmed its capex guidance of over Rs 10,000 crore (Rs 100 billion) for 2009-10. In the first quarter, Bharti's CE increased by Rs 1,800 crore (Rs 18 billion) mostly for mobile services.
Larsen and Toubro (L&T) has drawn up a Rs 2,000 crore (Rs 20 billion) capex plan for this financial year, for its investment in shipyard building in Chennai. The company has enough for its capex, recently said A M Naik, chairman and managing director. BHEL plans to increase its power equipment manufacturing capacity to 15 Giga Watts (GW) by March 2010 and to 20 GW by March 2012. The company had planned Rs 10,000 crore (Rs 100 billion) for this expansion, but spent only Rs 1,100 crore (Rs 11 billion) in 2008-09, indicating the majority of capex would happen during next two years.
Cipla is constructing a special economic zone (SEZ) for drug formulations at Indore, Madhya Pradesh, by spending Rs 750 crore (Rs 7.50 billion). Dr Reddy's Laboratories has lined up a capex of $100 million (about Rs 480 crore), mainly to invest in two SEZs near Hyderabad. Similarly, Lupin has lined up a capex of Rs 400 crore (Rs 4 billion) for the year and a majority of the investments will be in upgrading manufacturing facilities and setting up new ones in India.
