Due to supply chain conditions and semiconductor shortages, OEM capacity utilization has enhanced to beneficial levels over the past few quarters, with steady demand.
In FY2023, the market of Private vehicles is estimated at an overall growth of 3.7-3.8 million units which is an expansion of 21-24% as compared to the previous year.
“With ease in supply chain constraints and semi-conductor shortage, capacity utilization of the OEMs improved to healthy levels over the past few quarters – factoring in a continuation of strong demand sentiments, the OEMs have now revved up their capacity expansion plans,” the notice expressed.
According to the report, the industry’s capacity utilization levels were hit the hardest in the fiscal year 2022.
“Even amidst the uncertainty caused by the pandemic and the semiconductor crisis, the OEMs continued to invest in capacity augmentation and new product development, aided by their strong financial risk profiles. Intending to build up the capacity to cater to the ongoing robust demand and expectation of healthy volume growth going forward, the OEMs are now ramping up their capacity expansion plans. Multiple OEMs have already announced an aggregate outlay above Rs. 250 billion towards capacity expansion for the next few fiscals. Besides CAPEX Expenditure by the OEMs, auto component manufacturers are also expected to scale up their investments to support their customers,“ Rohan Kanwar Gupta, vice president & sector head – of corporate ratings, Icra declared.
“While adding new capacities will marginally moderate the capacity utilization levels over the next few years, given the healthy demand environment, the utilization is likely to remain at comfortable levels. With the OEMs also Capital budgeting for a substantial outlay towards new product development, including the development of capabilities/ dedicated platforms for electric vehicles, the aggregate CAPEX outlay for the OEMs is estimated to remain heightened at ~Rs. 650 billion over FY2023-FY2025,” he added.
Capital expenditures are likely to rise significantly, but much of that will be covered by significant cash generation and childcare support, in addition to arms financing for some of EV’s newly formed subsidiaries. As such, we expect most OEMs to have little leverage and credit profiles to remain stable.