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    Unsure Motown shelves $3 billion capex plans

    Synopsis

    Maruti’s parent Suzuki Motor corporation has deferred its $550-million third plant in Gujarat while Honda Motorcycle and Scooter India has pushed back plans to commence production from its third manufacturing line in Gujarat. Suzuki Motorcycle India has also put off by a few years its proposal to set up a second plant.

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    Vehicle makers alone have put off a cumulative $1-1.5 billion of investments.
    MUMBAI: Automakers and their vendors have slashed or deferred nearly $3 billion of expansion plans for the current financial year as a deepening slowdown in the industry shows no signs of improving. Despite retail sales growing for the second consecutive month in October and a pickup in wholesale numbers month-onmonth, auto makers are apprehensive about prospects for the remaining five months of FY20.

    Maruti’s parent Suzuki Motor corporation has deferred its $550-million third plant in Gujarat while Honda Motorcycle and Scooter India has pushed back plans to commence production from its third manufacturing line in Gujarat. Suzuki Motorcycle India has also put off by a few years its proposal to set up a second plant.

    Tata Motors and Ashok Leyland, the country’s top manufacturers of commercial vehicles, have scaled back capex plans for FY20 by Rs 500 crore each. Mahindra & Mahindra has cut investment plans by Rs 250-300 crore so far in FY20.

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    ‘Focus on ensuring ecosystem viability’
    Vehicle makers alone have put off a cumulative $1-1.5 billion of investments. A similar quantum of deferrals is expected by the vendors.

    “Having recognised the slowdown is now definitely upon us, the focus has been on ensuring that we manage the slump by doing it right,” said PB Balaji, group CFO, Tata Motors. “The focus has been on ecosystem viability, not just our viability,” he added. Official data released on Monday showed the Index of Industrial Production shrank 4.3% in September, after a 1.1% contraction in August. Mahindra & Mahindra MD Pawan Goenka had said in August that there could a 15-20% deferral of the company’s Rs 12,000-crore, threeyear capex plan. He had, however, added that product-related investments would continue.

    Car sales have crashed 20% so far this year while truck sales are down 23%. Two-wheelers sales have slipped by 16%.

    Auto makers are concentrating on producing cleaner BS-VI vehicles that have to be rolled out from April 1. These vehicles are expensive compared with BS-IV automobiles, and this fact could further impact demand.

    Gopal Mahadevan, wholetime director at Ashok Leyland, said companies typically cut capital expenditure when volumes are falling. But manufacturers, he said, also worry about short supply once demand picks up. “The company will like to strike a balance between these two and will continue to make investments related to regulatory changes — such as BS-VI — and modular platforms. Ashok Leyland has invested Rs 550 crore in the first half of the current fiscal year,” said Mahadevan.

    All this has had a bearing on leading vendors too. Tyre makers Apollo and Ceat have reduced capex plans by Rs 300-500 crore.

    Apollo Tyres CFO Gaurav Kumar recently told analysts the company is going slow on its greenfield project in Andhra Pradesh. “The company has reduced capital expenditure for domestic operations to Rs 2,300-2,400 crore from Rs 2,700 crore for the current fiscal, and (plans a) reduction of Rs 300 crore for the next fiscal year,” he said. Apollo Tyres has invested close to Rs 1,400 crore in the first half of FY20 in domestic operations.

    Vinnie Mehta, director general of the Automotive Component Manufacturers Association of India (ACMA), confirmed that vendors have realigned capex plans in view of the industry-wide slump.
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    21 Comments on this Story

    realdeshbhakt 315 days ago
    As hindu rashtrabhkts,we must shun christian-budhist-islamic technologies and return to our roots.Let us open lakhs of bullock cart manufacturing plants and raise bullocks-horses-camels-donkeys-yaks-buffaloes.That will be very green and environmentally friendly option but cruel to animals.
    Sameer Dada315 days ago
    Modi Hey tho mumkin hey...Jai ho Modi...Bharat mata ki jai
    Okman 315 days ago
    Indian Maruti Alto is worlds cheapest mass production car. It is cheaper by 1 lakh or 25% compared to Chinese Suzuki. After scaling up non stop for last 20 years with no recessions, Indian Auto market has a 10 % slowdown coinciding with NPA square off under insolvency act , fine! Time to attack the world market. Putting a fraction of the capex into global marketing will open all the roads .. South East Asia, Africa, East Europe, South America can take the small cars big time.
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