Auto sector capex may have fallen 18% in FY20

CHENNAI: An 18-month slowdown and the pandemic-triggered lockdown has resulted in a sharp decline in planned investment by the automobile industry. The auto and component industry combined will see its overall capex shrink from Rs 31,750 crore in FY19 to an estimated Rs 26,000 crore in FY20 — a drop of 18%, according to a report by Crisil.
Individual segments will however see a much sharper drop as the BS6 transition investment is already in place and the overall auto industry is working with 50% capacity utilisation.
“Between this year and next year, auto OEMs (vehicle manufacturers) will see a capex contraction of 30-35%, whereas component companies may see a contraction of 40-45% depending on their exposure to commercial vehicle market and export,” said Anuj Sethi, senior director, Crisil Ratings.

The reason is because there are “no major regulation requirements in the next couple of years and even after recovery next year the capacity utilisation will be less than 70% with companies investing only in new model, R&D and electric mobility”.
Auto makers including TVS and Ceat have announced capex cuts. Ceat has announced a 33% or Rs 250-crore cut in capex to Rs 500 crore, while TVS Motor has announced a capex of Rs 300 crore down 58% from the Rs 719 crore spent last year. Others like Hero MotoCorp have announced they will defer capacity expansion and other investment plans.
Bosch has announced that it has cut its capex by half due to slowdown in the auto market amid the pandemic. Auto parts makers’ trade body ACMA has announced that parts makers will defer planned capex of around $4 billion till 2022 to preserve cash and tide over demand and supply disruptions due to Covid-19.

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