(AU)
Auto makers in India are set to spend up to ₹58,000 crore in capital expenditure (capex) over the next two years—the highest in a decade—underscoring healthy demand prospects in the local market and impending safety and emission norms.
The figure will mark a 30% jump from the previous two comparative fiscal years, ratings agency Crisil said in a June report. The ratings agency studied investment plans at 18 auto makers, who comprise about 90% of total industry volume. The auto makers are ramping up investments on new products and capacity to tap growing demand. They also need to make their vehicles compliant with new safety and emission norms which will come into force over the next two to three years.
India’s automobile industry is one of the most capital-intensive sectors with a big appetite for re-investment in capex and research and development at regular intervals, according to a January report by BNP Paribas India. While other industries such as retail, and oil and gas have an average investment cycle of about two decades, the auto industry has one of the shortest at about four years, it said. To make matters worse, operating profit margins in the auto sector exceed only those of airlines and telecom, the report added, highlighting intense competition among firms.
