New Delhi: India’s economy may be entering a new investment cycle going by expansion plans across industry sectors, a move that could create more jobs, boost demand for machinery and supporting infrastructure, and portend a strong pick-up in the growth momentum in the years ahead.
A raft of companies across industries such as cement, paper, tyre, paints, automobiles and consumer durables have in the past three months announced capacity expansion plans totalling around Rs 50,000 crore over the next 2-5 years, and many more are in the process of firming up plans. The sharp rebound in business activity after the 2008/09 economic slowdown has allowed manufacturing firms to revive some of their pending investments, with rising demand giving companies confidence to expand capacity afresh.
 Industrial production grew 16.8% year-on-year in December, the fastest in almost two decades.
“It is just the beginning of the next round of investment. We have got indications from companies in sectors such as infrastructure, power, telecom and steel regarding their intentions to increase their capex,” says Jimmy Tata, group head and head of corporate banking at HDFC Bank.
Adds Ajay Arora, partner with Ernst & Young: “Capex build-up has definitely picked up, but companies are being a bit cautious, which may therefore result in a phased build-up of capacity across several sectors.”
And nowhere is the desperation to expand capacity more apparent than in the cement sector. This sector has already seen production capacity increase by as much as 50% in the past three years. It has lined up future investments of more than Rs 25,000 crore, half of which will be made by Holcim and Ultratech.
Aditya Birla group-owned Ultratech and Swiss-based Holcim, which owns ACC and Ambuja Cements, are locked 
in a race to boost production capacity, with their French rival Lafarge is also in the process of finalising locations for a string of greenfield projects. Second-tier firms such as JK Lakshmi Cement and Chettinad Cement are also ramping up capacity. Cement makers are benefiting from a rapid expansion in infrastructure investment, notably roads and airports, and a revival in the property market, where cheap home loan rates have triggered demand for residential property.
Another factor buoying investments is robust consumption demand, with domestic consumption of items such as automobiles and consumer electronics outstripping the pace of industrial revival.
Automobile and allied industries is one prominent sector where major capacity addition is happening. Last month the board of Maruti Suzuki, the country’s largest carmaker, approved New Delhi: India’s economy may be entering a new investment cycle going by expansion plans across industry sectors, a move that could create more jobs, boost demand for machinery and supporting infrastructure, and portend a strong pick-up in the growth momentum in the years ahead.
A raft of companies across industries such as cement, paper, tyre, paints, automobiles and consumer durables have in the past three months announced capacity expansion plans totalling around Rs 50,000 crore over the next 2-5 years, and many more are in the process of firming up plans. The sharp rebound in business activity after the 2008/09 economic slowdown has allowed manufacturing firms to revive some of their pending investments, with rising demand giving companies confidence to expand capacity afresh.
Industrial production grew 16.8% year-on-year in December, the fastest in almost two decades.
“It is just the beginning of the next round of investment. We have got indications from companies in sectors such as infrastructure, power, telecom and steel regarding their intentions to increase their capex,” says Jimmy Tata, group head and head of corporate banking at HDFC Bank.
Adds Ajay Arora, partner with Ernst & Young: “Capex build-up has definitely picked up, but companies are being a bit cautious, which may therefore result in a phased build-up of capacity across several sectors.”
And nowhere is the desperation to expand capacity more apparent than in the cement sector. This sector has already seen production capacity increase by as much as 50% in the past three years. It has lined up future investments of more than Rs 25,000 crore, half of which will be made by Holcim and Ultratech.
Aditya Birla group-owned Ultratech and Swiss-based Holcim, which owns ACC and Ambuja Cements, are locked in a race to boost production capacity, with their French rival Lafarge is also in the process of finalising locations for a string of greenfield projects. Second-tier firms such as JK Lakshmi Cement and Chettinad Cement are also ramping up capacity. Cement makers are benefiting from a rapid expansion in infrastructure investment, notably roads and airports, and a revival in the property market, where cheap home loan rates have triggered demand for residential property.
Another factor buoying investments is robust consumption demand, with domestic consumption of items such as automobiles and consumer electronics outstripping the pace of industrial revival.
 Automobile and allied industries is one prominent sector where major capacity addition is happening. Last month the board of Maruti Suzuki, the country’s largest carmaker, approved fresh investment of Rs 1,700 crore to add a second production line that will almost double the capacity at its plant in Manesar. Honda Motorcycles & Scooters India (HMSI), a unit of Japan’s Honda, is also setting up a second plant, while sibling Hero Honda is scouting for locations to set up a new unit.
Demand for automobiles rose sharply in 2009 after the government came out with a fiscal stimulus package that included tax cuts for producers. Easing borrowing costs amid rising consumer confidence on the back of better job security and the return of salary hikes and hiring have also helped the sector — in the first 10 months of the current fiscal year, total vehicle sales have risen 24% to around 10 million units.
While automobile companies are increasing investment, the scene is no different in the consumer durables sector.The local unit of South Korea’s LG Electronics, the largest consumer durables maker in the country, has announced plans to set up its third factory in India involving an investment of Rs 1,400 crore by 2013. LG’s expansion plans come after it has set a 45% revenue growth target for 2010 to generate Rs 19,000 crore in sales.
The ambitious growth target, the highest in six years, is based on 40% rise in sales by LG India in July-December 2009. The company sees sales to be largely driven by demand for LCD TVs and GSM mobile handsets.While the mood in the economy is by and large gung ho, some experts feel that expectations of rising cost of borrowings could become a restraining factor for some companies. The central bank has signalled monetary tightening in the light of spiralling inflation, a move that could push up interest costs in the next few months.
One impact of more borrowings would be immediately felt on the balance sheets of companies as higher interest rates eat into profits. In a scenario of rising rates, where not only capex-related borrowing but also higher interest outgo on working capital impacts companies’ financial position, credit ratings could get affected.
But D R Dogra, managing director of CARE Ratings, says Indian companies could take heart from their relatively underleveraged balance sheets.
“The overall debt equity ratio of India Inc has remained stable at around 0.87 to 0.9 in the past three years,” says Mr Dogra, adding that companies have been able to improve their capital structures due to buoyant equity markets until January’08 and fresh equity infusion thereafter. |
New Delhi: Business confidence in India has touched a two-year high in January 2010, according to the latest National Council of Applied Economic Research (NCAER)-MasterCard Worldwide Index of Business Confidence. 
Mumbai: Over 15% rise in the fortnight ended February 12.