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Capital goods train delay hits India Inc's capex plans
Industry News- Jun 05,24
Southeast Asian manufacturing hubs such as Taiwan, Vietnam and Indonesia are expanding component-level manufacturing.
India Inc's plans to increase capacity or set up new plants are stuck due to delays in the import of capital goods and machinery to build factories as manufacturers in China and Southeast Asia embark on their own expansion plans. That could potentially hobble their ability to meet any rise in consumption demand.
Reliance is among Indian companies facing such challenges as it looks to set up production facilities for its fast-moving consumer goods (FMCG) business and scale it up, said a senior executive, citing difficulties in establishing bottling plants for Campa Cola with machinery suppliers asking for a year and more. Reliance didn't respond to queries.
Ravi Jaipuria, Chairman, Varun Beverages, told analysts on an earnings call May 13 that its plant for Cream Bell dairy based beverages could only start operations in April instead of January due to 'global supply chain issues'.
Factoring in Factory Parts' Crunch
China is focusing on a manufacturing-led revival of its economy. Southeast Asian manufacturing hubs such as Taiwan, Vietnam and Indonesia are expanding component-level manufacturing. Besides, the Red Sea crisis and other geopolitical tensions have increased delivery times for machinery meant to set up or augment production lines. Schedules for factory parts such as injection moulding or heat exchangers have almost doubled to a year, said Jasbir Singh, Chairman, Amber Group, India's largest contract AC manufacturer. Heat exchangers are key components in ACs and refrigerators.
"A lot of Southeast Asian nations are now focusing on making components, which has increased scarcity of capital goods," he said. "We have to now factor in this shortage of capital goods in our capex planning."
Rajiv Goel, Executive Director, Havells India, said part of the company's planned FY25 capex of Rs 10 billion may spill over to FY26.
"If we order machinery today, it might take a year for delivery," he said. "There is a crisis on delivery timelines for capital goods. So maybe the actual capex for FY25 would ultimately be around Rs 8 billion." Its FY24 capex was Rs 7 billion.
China's factory activity expanded in March and April for the first time in six months. Southeast Asian nations such as Indonesia and Philippines have also expanded.
China has said it will spend almost $1.4 billion to upgrade industries and modernise manufacturing, announcing measures to promote overseas investment in the country' technology sector, while spurring domestic demand by encouraging local consumers to scrap old appliances and trade in their cars for electric vehicles (EVs).
Higher logistics costs
The tension in the Red Sea region has increased shipping time by a few weeks and raised logistics costs, said Satish NS, President, Haier India. In a March report, ICRA said the momentum of domestic capex has picked up pace with a healthy order intake for capital goods companies. Domestic demand has shown green shoots of recovery in the last few months and the new government is likely to boost spending further in the next quarters, industry executives said.
German industrial manufacturing company Sunil Mathur, MD, Siemens India told analysts earlier this month that the company's overall enquiries are robust - at the same level or higher than last year. He said the pipeline is ‘very, very strong’ in the energy transmission business, while it has increased in EVs, electrification and smart infrastructure.
(Source: ET)
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