FREE

MOSL: CAPITAL GOODS-Capex tracker | New project announcements remain weak

​CAPITAL GOODS: Capex tracker | New project announcements remain weak; Share of government in projects under implementation highest since 2006

We highlight key takeaways from the quarterly projects data released by Centre for Monitoring Indian Economy (CMIE); we use this as a proxy for the Indian capex cycle. CMIE tracks projects across stages of announcement, implementation and completion, and takes into account stalled/shelved projects.

New project announcements decline for 2nd quarter in a row

New projects announced in 1QFY18 declined 8% YoY to INR1.4t, marking the second quarter of decline (down 15% YoY in 4QFY17 following demonetization). This is much lower than the average quarterly investment announcement of INR2.2t in the last three years. Key segments that witnessed declines were Metals (-42% YoY), Chemicals (-75% YoY), and Electricity (primarily coal fired plants, -78% YoY); the Transport segment grew 65% YoY (INR673b). An analysis of the Transport segment shows that of the INR673b projects announced, INR345b (51% of Transport) is for aircraft orders from Indigo and Spice Jet, which do not benefit the domestic capital goods/infrastructure playe rs. Excluding the aircraft orders from Indigo and Spice Jet, order announcement would have declined 31% YoY to INR1t.

Projects under implementation up 6% YoY

Projects under implementation grew 6% YoY to INR97.8t in 1QFY18. 59% of the projects under implementation are from the government sector (highest since June 2006), while the share of the private sector is 41%. This is reflective of the reluctance of the private sector to invest in new capacity, given (a) constrained demand scenario and resultant underutilization, and (b) over-leveraged balance sheets of the private sector. Sectors that registered strong growth are Transport Services (+28% YoY) and Transport Equipment (+25% YoY); the Electricity segment witnessed a decline of 3% YoY.