Capex tracker : New project announcements remain weak

Sector Update | 3 July 2017

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 announcement

declines for 2 quarter in a row

New Projects anncd INRb

4,800

3,600

2,400

1,200

Growth YoY (%)

255%

170%

85%

-85%

New project announcements decline for 2

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.

Projects completed fell 16% YoY; 2

quarter of decline

Stalled project continues to remain

at elevated levels (12% of the

project)

Stalled Project (INR b)

as a % of under implementation

15000

10000

5000

15%

10%

Projects completed declined 16% YoY to INR973b – second consecutive quarter of

decline. Key segments that led to the fall were Construction / Real Estate (-65% YoY,

likely impact of demonetization) and Electricity (-43% YoY); Metals (+22% YoY, JSPL

Angul Phase-1 steel plant: INR330b) and Transport (+93% YoY, Bangalore Metro:

INR144b) saw growth.

Projects stalled at 12% of projects under implementation

Projects stalled remained elevated at 12% of projects under implementation in

1QFY18, lower than the peak of 12.8% in 4QFY16 but significantly higher than

average of 4-5% in the previous cycle. Projects stalled stood at INR11.7t (+6% YoY).

Stalled projects in Construction and Real Estate (11% of stalled projects) increased

46% YoY. 52 projects worth INR2.4t were scrapped during the quarter. Key projects

that got scrapped are Mithi Vardi Automic Power Plant worth INR600b (government

project) and Posco’s 12m tonne steel plant in Paradip, Odisha, with a proposed

investment of INR500b.

Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

8 August 2016

Investors are advised to refer through important disclosures made at the last page of the Research Report.

Ankur Sharma

(Ankur.VSharma@MotilalOswal.com); +91 22 3982 5449

Amit Shah

(Amit.Shah@MotilalOswal.com); +91 22 3029 5126

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