Following the economy gaining momentum, vehicle output witnessed a new record, the automotive market is leading the pace of growth in manufacturing CAPEX in FY23. The pace of growth is the second highest after the metal sector.
The automotive market CAPEX is set to cross $3 billion, or ₹27,000 crores, in FY23, posting a growth of 24% as per estimates by Axis Capital. The forecast capital investment of auto companies in FY23 will surpass the pre-Covid CAPEX peak of ₹26,800 crores in FY20. The overall CAPEX of 75 manufacturing companies is expected to increase 13% to ₹1.6 lakh crore.
The auto sector's cumulative capital allocation was north of ₹50,000 crore in FY19 and FY20 and it dropped by 27% for FY21 and FY22 to ₹37,841 crore as demand tapered off due to Covid. The auto sector CAPEX upgrade is mainly led by higher allocations of Mahindra & Mahindra and Tata Motors which together increased budgets by around ₹4,000 crores from the previous fiscal.
Tata Motors raised its CAPEX spending to ₹6,000 crores for the current fiscal from ₹3,500 crores in FY22, while M&M's investment perked up to ₹6,000 crores in FY23, a gain of ₹1,500 crores over the last year. India's largest car maker Maruti Suzuki typically spends ₹4,500-5,000 crore on CAPEX every year, while listed three two-wheelers companies deploy around ₹500-800 crore per year on capital spending.
Both homegrown automakers Tata Motors and Mahindra & Mahindra raised their investment plans. Tata Motors' annual investment grew by 30%, whereas Mahindra increased its mid-term investment plan by 25%.
Manoj Bhatt, the CFO at Mahindra & Mahindra, said: "Considering the strong demand, M&M is witnessing the models that have been built into CAPEX projections going forward. We are going to increase capacity in XUV 700 and other models. As for Farm, we are setting up a new plant and the increased CAPEX is towards the new facility."
P B Balaji, CFO at Tata Motors, recently said the demand environment is robust and the businesses will be well funded to transition to the EV roadmap. "We will be investing ₹5,500 to ₹6,000 crores for the domestic business and it will be used across CV, PV and EV businesses in FY23," added Balaji.