Automakers to incur ₹65,000 cr. capex to meet demand: Icra

Automakers are likely to plan an aggregate capital expenditure outlay of ₹65,000 crore over FY2023-FY2025 to ramp up capacity to meet demand and for new product development, according to Icra.

The rating agency said wholesale volumes are projected to touch an all-time high of 3.7-3.8 million units in FY2023, a growth of 21-24% from FY22, backed by buoyed demand.

According to Icra, the demand for passenger vehicles has remained healthy since the turn of the calendar year, aided by strong underlying demand and an easing up of semiconductor shortages (thereby enabling improved production levels across OEMs). 

With easing supply-chain constraints and semi-conductor shortage, capacity utilisation of the OEMs improved to healthy levels over the past few quarters – factoring in a continuation of strong demand sentiments, the OEMs have now revved up their capacity expansion plans, it said.

Rohan Kanwar Gupta, vice president & Sector Head – Corporate Ratings, ICRA, said, “Even amidst the uncertainty caused by the pandemic and the semiconductor crisis, the OEMs continued to invest in capacity augmentation and new product development, aided by their strong financial risk profiles.” 

“Intending to build up the capacity to cater to the ongoing robust demand and expectation of healthy volume growth going forward, the OEMs are now ramping up their capacity expansion plans. Multiple OEMs have already announced an aggregate outlay in excess of ₹25000 crore towards capacity expansion for the next few fiscals. Besides CAPEX by the OEMs, auto component manufacturers are also expected to scale up their investments to support their customers,” he said.

While adding new capacities will marginally moderate the capacity utilisation levels over the next few years, given the healthy demand environment, the utilisation is likely to remain at comfortable levels (i.e., around 70%)., Icra said.

“With the OEMs also budgeting for a substantial outlay towards new product development, including the development of capabilities/dedicated platforms for electric vehicles, the aggregate capex outlay for the OEMs is estimated to remain heightened at ₹650 billion over FY2023-FY2025,” it added.