Corporate capital expenditure recovery not in sight yet
Higher capacity utilisation is considered to be a precursor to capital expenditure by companies.
"During the period, maintenance spending will be incurred by the 125 non-stressed corporates of the top 200 asset-heavy corporates. The capex of these corporates expanded at a 10 per cent CAGR over FY12-FY17...However, the 75 stressed corporates, which registered negative 11 per cent capex CAGR for FY12-FY17 and are from key investment-linked sectors, such as metals and mining, infrastruc ture, and power, may not even be in a position to incur maintenance capex. Thus, they are likely to drag down investment recovery for another two-three years," Ind-Ra stated in a note.
Ind-Ra said the 125 nonstressed companies represent 85 per cent of the capex spending of the top 200 corporates over FY12-FY17, with a ca pacity utilisation of 75 per cent-80 per cent. These companies will have to manage the burden of recovery because stressed companies are fighting for survival.
"The gap between stronger and weaker companies is widening over the years. Auto and oil and gas are only the sectors where the capital utilisation is at 100 per cent whereas metals, infrastructure and power are grappling with leverage and so are not expected to spend soon," said Priyanka Poddar, senior analyst at Ind-Ra.
Ind-Ra expects capacity utilisation for auto and automotive supplier and oil and gas to stay around current levels of 143 per cent and 100 per cent respectively. Sectors like metals and mining, infrastructure and power are grappling with capacity utilisation of around 60 per cent.
Higher capacity utilisation is considered to be a precursor to capital expenditure by companies as it means that the existing production is at full tilt and companies have to in vest in fresh capacity.
"In a scenario where overall capac ity utilisation (aggregated for the top 200 capex spenders) continues to re main at 60 per cent-65 per cent, the five times me dian net leverage (highest since FY05), muted demand growth and weak pace of nominal growth recov ery (resulting in low EBITDA), capital expenditure activity may not re vive even in the next seven-nine years."