Economy

Automakers’ capex pegged at Rs 58,000 cr for next two years: Crisil

G Balachander Chennai | Updated on June 18, 2018

Commercial vehicle accounts for 20 per cent of the capex, according to Crisil. File Photo   -  BusinessLine

Passenger vehicle makers to account for 70 per cent of the capex

Manufacturers of commercial vehicles, passenger vehicles and two wheelers are expected to incur a total capex of about ₹58,000 crore over the next two fiscals – 2018-19 and 2019-2020. This capex will be 30 per cent higher than the preceding two fiscals. The higher capex for the next two years is driven mainly by healthy demand prospects and regulations, according to a report of rating agency Crisil.

A study of 18 OEMs (of which 10 are rated by Crisil), covering about 90 per cent of current industry volume, indicates PV makers will account for almost 70 per cent of this capex. This will be supplemented by CV manufacturers with 20 per cent share and the balance by two-wheeler manufacturers. “About half of the Rs 58,000 crore would be to expand capacity to cater to growth in demand, and the balance for new products and technology to conform to tighter regulations,” said Anuj Sethi, Senior Director, CRISIL Ratings.

Vehicle demand is expected to grow in most segments in high single digits till fiscal 2020, supported by rising disposable incomes and increasing industrial and rural activity. The OEM space is largely duopolistic with the top two players in each segment (PVs, CVs and two-wheelers) enjoying 60-70 per cent market share.

The top two players in the PV segment, for instance, are operating at close to optimal levels and are even resorting to lowering exports to meet domestic demand. Leading players in other segments are operating at utilisation levels of over 70-75 per cent. Thus, the top two players are expected to incur more than half of the total capex in each segment, as they seek to maintain market share amid healthy demand and tighter regulations.

New model launches and investment in product development, including electric vehicles will also be necessitated due to intense competition. In FY19, about eight new major model launches are to happen in the PV segment alone, compared with six in FY18.

Besides, investments in technology are being made to ensure products conform to regulatory changes, including BS-VI emission norms, braking norms and crash tests. Despite sizeable funding requirements for capex in the next two years, Crisil expects the credit quality of rated OEMs to remain stable, going forward, supported by strong cash generating ability, well-maintained balance sheets as well as promoter support.

Published on June 18, 2018

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