Steady and cautious: What India's conglomerates are doing for capex push

Finance Minister Nirmala Sitharaman told Parliament on Wednesday that companies are increasing investments in factories and other assets, helped by government incentives such as the production linked incentive (PLI) Scheme.

Business Standard analysed what large business houses have added as net fixed assets since the pandemic. Many have not added fixed assets to match business growth since Covid-19 first began to affect the global economy two years ago.

The analysis looked at the Adani, Mukesh Ambani, Tata, Aditya Birla, Mahindra, Godrej, Bajaj and the JSW groups. It considered the change in net fixed assets of these business groups. The analysis is an indicative rather than an exact proxy for investments, but provides a broad sense of the direction in which private capital expenditure (capex) is moving.

The Adani Group led in adding net fixed assets, which are up more than 90 per cent since September 2019 or before Covid-19. The Mukesh Ambani group’s net fixed assets were slightly lower in September 2022 than the September 2019 level. A large proportion of the group’s additional investments was for telecom spectrum, an intangible asset. The March 2022 annual report shows a spectrum cost of Rs 93,177 crore.

The Tata group marked down the value of assets, including in its auto and communications business. Such impairments reflect lower than previously expected future business from such assets. The impairments contributed to the group’s net fixed assets declining by nearly a tenth for the companies under consideration as seen in chart 1 (click image for interactive chart).

At most groups, net sales have grown faster than the addition of net fixed assets. The analysis considered net sales for the 12-months ending September 2022 and compared the same to a similar period ending September 2019. Five out of the eight groups had higher growth in net sales than growth in net fixed assets. Adani, Godrej and Bajaj had higher growth in net fixed assets than in net sales.

Factories and other assets functioned below capacity to produce goods during Covid-19. Capacity utilization has been increasing lately and reached 72.4 per cent in June 2022, from a low of under 50 per cent at the height of the pandemic, according to the Reserve Bank of India’s numbers.

Companies are reluctant to invest in new factories and plants when existing capacity is not fully utilised.

Median profit for all groups in this analysis increased 70 per cent since the year leading up to September 2019 to the corresponding period ending September 2022.

But the spectre of a global recession is hurting sentiment, and may decide whether the surge in profitability translates into a capex boom.