Weak trend in new investment announcements continues in FY18

Only 448 projects worth Rs.1.35 trillion announced in Q1

by Manasi Swamy

Announcements of new industrial & infrastructural projects remained muted in the first quarter of 2017-18. Only 448 projects were announced during the quarter. This is the lowest quarterly project announcement seen since June 2014, the time when the last capex cycle bottomed out. Investment entailed in these projects, at Rs.1.4 trillion, was also significantly lower than the average quarterly announcements of Rs.2.2 trillion seen in the last three years.

New project announcements, which were falling relentlessly after the Global Liquidity Crisis of 2008, showed a resurgence after the Modi Government came into power in May 2014. The fiscal year 2014-15 saw announcement of new projects worth Rs.10.1 trillion. New announcements by both the government and the private sector surged during the year. The newly elected government tried to give a big push to the slowing economy by announcing projects worth Rs.4.7 trillion. New investment announcements by the private sector also jumped to Rs.5.4 trillion from Rs.2.7 trillion in 2013-14.

While the private sector managed to maintain the new level of project announcements in the following two years, the government lost steam. New investment announcements by the government almost halved from Rs.4.7 trillion in 2014-15 to Rs.2.5 trillion in 2015-16 and inched down further to Rs.2.4 trillion in 2016-17. Fiscal constraints and continuous pressure from international rating agencies might have compelled the government to go slow on announcement of new projects.

New investment announcements by the government dropped further to Rs.508 billion in the first quarter of 2017-18. Project announcements by the private sector also barely matched the last year’s level, at Rs.843 billion.

New investments by ownership
Quarters Rs.billion Count (nos.)
  Total Government Private Total Government Private
Jun 14 857 391 466 588 213 375
Sep 14 3,037 1,805 1,233 795 412 383
Dec 14 3,959 1,942 2,017 602 262 340
Mar 15 2,265 555 1,710 924 426 498
Jun 15 1,104 609 494 903 415 488
Sep 15 2,449 705 1,745 738 360 378
Dec 15 1,204 269 935 626 235 391
Mar 16 3,430 948 2,482 935 429 506
Jun 16 1,464 612 852 777 308 469
Sep 16 2,365 577 1,788 655 300 355
Dec 16 1,426 521 906 556 256 300
Mar 17 2,918 673 2,245 920 514 406
Jun 17 1,350 507 843 448 251 197

Moreover, a fourth of the new investments announced during the June 2017 quarter were for procurement of aircraft. Spicejet decided to acquire 20 Boeing 737 Max 10s planes and 50 Q400 Turboprop aircrafts from overseas for a consideration of Rs.261 billion. Interglobe Aviation also signed a Rs.84 billion contract with French-Italian aircraft maker ATR to purchase 50 ATR 72-600s.

These projects mean merely an outflow of dollars from India. These do not involve any construction activity, and hence, can not have the ripple effect on the country’s economic growth through generation of fresh demand for machinery, steel, cement and other construction items. Also, these projects are going to generate limited employment unlike manufacturing projects which create large scale employment.

New investment announcements in the manufacturing sector dropped to a two-year low of mere Rs.375 billion in the June 2017 quarter. The power sector also saw new investment announcements fall to Rs.60 billion, touching its lowest level in the last 15 years.

The drop in investment interest is a result of excess capacity built-up, weak demand, leveraged balance sheets and drop in returns on capital employed (ROCE). Capital intensive manufacturing industries like steel and cement are suffering from low capacity utilisation levels and have almost lost their pricing power. The story of the power sector is no different. Besides, banks, which are already ladened with bad debts, have turned cautious in lending to new projects.

The weak trend in new investment announcements is likely to continue till demand shows a sustainable pick-up and capacity utilisation levels start rising.

CMIE STATISTICS
Unemployment Rate
Per cent
3.3 -0.0
Consumer Sentiments Index
Base September-December 2015
94.9 0.0
Consumer Expectations Index
Base September-December 2015
95.4 0.0
Current Economic Conditions Index
Base September-December 2015
94.1 0.0
Quarterly CapeEx Aggregates
(Rs.trillion) Sep 16 Dec 16 Mar 17 Jun 17
New projects 2.37 1.43 2.91 1.55
Completed projects 2.21 0.94 1.81 1.02
Stalled projects 0.65 1.01 0.35 2.45
Revived projects 0.91 0.17 0.62 0.29
Implementation stalled projects 0.37 0.81 0.33 0.63
Updated on: 27 Jul 2017 8:20PM
Quarterly Financials of Listed Companies
(% change) Sep 16 Dec 16 Mar 17 Jun 17
All listed Companies
 Income 2.1 6.2 10.3 9.2
 Expenses 1.9 6.4 11.8 9.6
 Net profit 14.6 40.4 17.7 4.5
 PAT margin (%) 6.9 6.1 6.2 12.5
 Count of Cos. 4,494 4,492 4,354 274
Non-financial Companies
 Income 0.6 6.0 11.8 8.8
 Expenses -0.2 7.3 15.5 9.4
 Net profit 26.7 24.7 -1.0 2.0
 PAT margin (%) 6.9 6.2 6.4 12.4
 Net fixed assets -9.2 7.6
 Current assets 8.1 2.5
 Current liabilities 11.6 9.3
 Borrowings 3.1 5.4
 Reserves & surplus 8.4 7.7
 Count of Cos. 3,491 3,493 3,398 202
Numbers are net of P&E
Updated on: 27 Jul 2017 8:30PM
Annual Financials of All Companies
(% change) FY13 FY14 FY15 FY16
All Companies
 Income 12.6 9.9 5.0 1.0
 Expenses 12.8 9.8 5.1 1.2
 Net profit 1.0 -2.3 1.4 -14.2
 PAT margin (%) 3.5 3.2 3.2 3.1
 Assets 14.3 12.3 9.4 8.7
 Net worth 9.6 9.6 8.8 7.6
 RONW (%) 6.8 6.2 6.1 5.4
 Count of Cos. 25,169 22,706 21,937 18,146
Non-financial Companies
 Income 11.9 9.6 4.1 0.0
 Expenses 12.2 9.3 4.3 -0.6
 Net profit -8.5 -2.7 -5.9 8.1
 PAT margin (%) 2.4 2.2 2.2 2.8
 Net fixed assets 12.9 11.6 13.2 12.6
 Net worth 7.8 8.6 7.4 6.9
 RONW (%) 5.5 5.1 4.9 5.6
 Debt / Equity (times) 1.1 1.1 1.1 1.0
 Interest cover (times) 2.1 1.9 1.9 2.1
 Net working capital cycle (days) 72 69 67 66
 Count of Cos. 19,615 18,084 17,557 14,859
Numbers are net of P&E
Updated on: 22 Jul 2017 1:04PM

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