Amid projections that sales will further slow down, the domestic auto makers will make a capital expenditure of Rs 13,000 crore in the current fiscal in order to compete with the global giants.
According to the latest report by Crisil, an analysis of 11 Crisil-rated OEMs, which constitute two-third of domestic sales, shows they will spend aggregate capex of Rs 13,000 crore in this fiscal, or 10% more than last year.
Auto companies generally spend on three aspects – technology, product development and capacity expansion.
Due to the slowdown the companies would spend the major part of the capex on technology and product development, while capacity expansion will remain slow till the time demand picks up, the report said.
Companies like Maruti Suzuki, Hero MotoCorp, Bajaj Auto and M&M have already announced their capex plans for the next couple of years. With increasing competition from global manufacturers such as Volkswagen, Ford and Daimler, the Indian manufacturers are increasingly focusing on new technology and product development. These two areas will account for account for two-thirds of the capex of Rs 13,000 crore this fiscal, while the rest will go towards maintenance and capacity expansion,” it said.
“Except for few years, this could be among the highest capex made by the OEMs. As competition intensifies, the Indian manufacturers are in a need for fresh models and new designs. The trend will only intensify going ahead,” said Pawan Agrawal, senior director, Crisil Ratings.
The report said OEMs will maintain their stable credit risk profiles because of strong financials. On an aggregate basis, they will have more than two-thirds of their adjusted debt of Rs 34,500 crore in the form of cash or equivalents by March 31, 2014.
“Domestic auto OEMs such as Maruti Suzuki, Mahindra & Mahindra, Bajaj Auto and Hero MotoCorp have strong balance sheets. Moderate debt and healthy liquid surplus provide these companies with adequate cushion to absorb the capex and weather the slowdown,” said Manish Gupta, director, Crisil Ratings.
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