India Inc has a good reason to step up capital expenditure ( capex).
With the Budget proposing an additional investment allowance of 15 per cent for assets acquired and installed in the next two years for over ₹ 100 crore in capital spending, companies are expected to get a total benefit of ₹ 25,000 crore.
According to an estimate by the Centre for Monitoring Indian Economy ( CMIE), India Inc plans fresh capital expenditure of around ₹ 5,00,000 crore in 400 projects in the next two financial years. “ There will be a saving of up to five per cent from our capital cost and this will help new units to break even faster,” said Ashok Bhandari, chief financial officer, Shree Cement.
Reliance, the Birlas and the Tatas, which have a number of projects lined up, will benefit from this move. So will public sector companies.
The estimated saving of around ₹ 25,000 crore on project cost is equivalent to 7.3 per cent of the aggregate profits of BSE- 500 companies in FY12. The savings will flow directly into their bottom line and improve the financial viability of projects.
Aditya Birla Group flagship Grasim Industries would be another gainer. The company, with subsidiary UltraTech Cement, is investing ₹ 16,000 crore in augmenting fibre and cement capacities. Nearly a third of this amount is likely to be spent in the next financial year and the company can claim investment allowance on it. K K Maheshwari, managing director of Grasim Industries, said the move would definitely boost their investment plans. He did not quantify the benefit.
“This would imply an almost doubling of the commissioning of manufacturing projects compared to what has been seen in the previous two years,” said CMIE’s managing director Mahesh Vyas. One of the top beneficiaries of this scheme would be Reliance Industries, which intends to invest around ₹ 1,00,000 crore in the next five years. RIL is investing $ 8 billion (₹ 43,784 crore) in expanding its capacity in petrochem and refining and to roll out its telecom business by the year- end.
“The scheme will surely benefit our planned capex at Manesar and Gurgaon,” said Ajay Seth, chief financial officer of Maruti Suzuki, without giving the actual savings. In the last three years, the company had spent on an average ₹ 2,000 crore every year on capex.
15% allowance on capital expenditure would help PSUs, too SOME BIG BENEFICIARIES
Companies with strong balance sheets and a ready pipeline of projects would benefit. The deduction is in addition to regular depreciation benefits and includes investments in equipment and machinery but excludes those in land and buildings
(₹ crore) Company Expected capex* Savings**
IOC 30,000 1,500 ONGC 21,900 1,095 Hindalco 20,000 1,000 SAIL 27,300 1,365 RIL, Jamnagar 16,000 800 MRPL 12,200 610 NMDC 15,500 775 Grasim 5,500 275 Maruti Suzuki 4,000 200 Shree Cement 1,500 75
*During FY14 and FY15; ** At the rate of 5% of capex amount Source: CMIE, company reports
DEV CHATTERJEE & KRISHNA KANT