Investments lined up by a dozen automotive companies for 2020-21 sums up to just Rs 11,000 crore, a multi-year low, following corrective measures adopted to tackle the disruption caused by the coronavirus pandemic.
These vehicle-making companies and their auto parts-producing partners have decided to push back launches, delay start of new factories, deferred development of new technologies and come down heavily on fixed and variable costs to cut down on capital expenditure (capex).
As per the capex guidance provided by 12 publicly-listed companies making cars, trucks, two-wheelers, tyres and a variety of auto parts, there is a 40-42 percent reduction in capex for the year. Unlisted multinational companies have also followed suit to prepare for a readjusted spend this year.
After a 41 percent cut at Rs 2,700 crore the capex for FY21 lined up by car market leader Maruti Suzuki is the lowest in five years. The average spend by the maker of Swift and Baleno during the previous four years stood at Rs 4,600 crore.
The Delhi-based company is choosing to defer expenditure wherever possible. Maruti’s parent company Suzuki Motor Corporation has deferred start of production at its third plant in Gujarat to 2021 as against 2020 planned earlier.
Tata Motors has come down heavily on its capex which has been slashed by 56 percent for the year at the stand-alone level. The Mumbai-based manufacturer which has been battling market share erosion in commercial and passenger vehicle segments will now spend Rs 1,500 crore in FY21 instead of Rs 3,400 crore decided earlier.
Mahindra & Mahindra will turn out to be the biggest spender in FY21. Its top management in a mid-June analyst call outlined a cutback of just 15 percent in capex for the year to around Rs 3,400 crore as against Rs 4,000 crore planned earlier.
This is because a substantial part of the investment will go into product development most of which are in advanced stages of their development cycle. Three new SUVs including the next generation XUV500 followed by new tractors, trucks and electric vehicles are on the cards.
While truck and bus maker Ashok Leyland is yet to share details of the absolute cut the company indicated that its capex for the year will be substantially lower than the Rs 1,227 crore spent last year. As per plans shared earlier Ashok Leyland’s capex will not exceed Rs 400-500 crore in a given year.
The three manufacturers of two and three-wheelers – Hero MotoCorp, Bajaj Auto and TVS Motor Company – will incur little over Rs 1,000 crore in capex for FY21. This will be much lower than the Rs 1,800 crore the three companies who control 60 percent of India’s two-wheeler market, usually spend in a year.
While tyre makers Ceat and Apollo have cut down their capex by 33 percent and 29 percent respectively for the year to Rs 500 and Rs 1,000 crore auto component makers are not far behind.
Pune-based Bharat Forge will not be doing any capex this year. Its peers such as Bosch and Endurance have slashed capex by 50 percent each to Rs 175 crore and 150 crore, respectively.
Only Eicher Motors, the parent company of Royal Enfield, has decided to go ahead with its planned capex for the year which will be similar to last year’s Rs 700 crore. This will be majorly routed towards product development, the company clarified.
A slower-than-predicted growth in demand marred by COVID-19-induced slowdown will ensure that vehicle sales close FY21 in the red for the second consecutive year. However, auto companies are banking on a favourable monsoon and a stimulus package from the government to lift the spirits.