India automobile capex to cross Rs27,000 crore in FY23

It is always the surge in capex (capital expenditure) spending that shows the extent of confidence that businesses have on the economy and the consumption potential. Auto companies have been seeing a turnaround on the back of improved demand, lower input costs and a sharp improvement in Kharif output. To keep pace with the growing demand and also considering that now the microchip shortage is largely addressed, auto companies are embarking on an aggressive capex plans. That is good news for the medium term.

In the fiscal year FY23 alone, the overall capex of the automotive sector is all set to cross $3 billion and is likely to inch closer to Rs27,000 crore for the full year. According to the report prepared by Axis Capital, the capex has shown a yoy growth of 24%. It is also estimated that for the full year FY23, the total capex of the auto sector overall will surpass the previous highs of Rs26,800 crore during the pre-COVID peak in FY20. Since then, the total capex has been on a downtrend and FY23 is all set to witness a record in auto capex spending.

If you look at the capex of Indian industry overall, the only sector that will undertaking more capex than the auto sector is the metal sector. If you look at the manufacturing sector in India is expected to be close to Rs1.70 trillion, which represents a sharp spike of 13% over the previous fiscal year. This clearly shows that there is a lot of confidence among CFOs and CEOs that the demand will sustain in the coming years and the challenge now is to boost supply. The decks are cleared with the microchip shortage largely addressed.

It is interesting to see how the cumulative capex of the auto sector has evolved in the last 4 years. For instance, for FY10 and FY20, the cumulative capex for the auto sector was Rs50,000 crore. This fell sharply by 27% as the cumulative capex was just about Rs37,481 crore in the years FY21 and FY22 put together. In contrast, FY23 is likely to see a sharp pick up in capex at over Rs27,000 crore. At least, we will finally have capex in auto that is among the best that the Indian economy has ever seen and promising to just get more alluring.

The capex boost has come from the two mega players in the auto sector in India viz. Tata Motors and Mahindra & Mahindra. These are the two companies that will see enhanced capex of Rs4,000 crore between them and they have the reason for the capex upgrade of the auto sector in Fy23. Both the companies have been growing frenetically at a time when Maruti Suzuki and Hyundai were struggling to find their feet in the highly tricky and competitive Indian market. However, the year FY23 could be a lot more interesting.

In terms of specifics, here is the company-wise auto capex that is being planned in FY23.

    • Tata Motors has upped its capex spending to from Rs3,500 crore in FY22 to Rs6,000 crore in FY23, as it goes heavy on EV investments.

    • The other big boost came from Mahindra & Mahindra where the capex grew from Rs4,500 crore in FY22 to a level of Rs6,000 crore in FY23. 

    • Maruti Suzuki has, on an average, been spending up to Rs5,000 crore as capex each year and it plans to sustain that level of capex even in the current year FY23.

    • The three major 2-wheeler companies viz. Hero Moto, Bajaj Auto and TVS Motors will maintain an investment of around Rs800 crore in the current year FY23, largely EVs.

    • M&M plans to increase the capacity of its XUV 700 model to ensure that they have sufficient output to meet the enhanced demand.

    • Tata Motors will take a more broad-based approach to its capex and it will invest across commercial vehicles (CV), passenger vehicles (PV) and electrical vehicles (EV).