Completion of capex projects slows down

by Mahesh Vyas

Projects worth Rs.512 billion were commissioned during the quarter ended September 2017. In the coming weeks this estimate is expected to rise. It could reach about Rs.700 billion. Even if this happens, this would be the lowest commissioning of projects during the Modi government’s tenure so far.

This is disappointing because one redeeming feature of the Modi government is that the commissioning of projects did pick up during its tenure. Completion of projects increased from an average of Rs.1.8 trillion a year during UPA I to Rs.3.8 trillion during UPA II. During the last two years - 2015-16 and 2016-17 - completions were of the order of Rs.6 trillion.

This steady increase in completion of investment projects of course, reflected the massive build-up of projects in the preceding decade. Nevertheless, project commissioning did rise.

Now, the first half of 2017-18 indicates that we may be losing the momentum. The total investments commissioned during the first half adds up to a mere Rs.1.6 trillion or, even after revisions it may barely touch Rs.2 trillion. A simple projection, and even after accounting for a pick-up in the second half, indicates that 2017-18 project completions would fall short of the order of Rs.6 trillion completions that we saw in the past two years.

Some promoters keep pushing the date of completion further into the future. Others don’t even do that. Either ways, they don’t seem to be in sufficient hurry to complete the on-going projects.

In June 2017, The Delhi Metro Rail had said that its Phase III project would be completed by March 2018. But, the date is now pushed to December 2018.

On paper, 942 projects are scheduled to be completed during the quarter ended December 2017. If these plans fructify, then they could commission projects worth investments of Rs.3.3 trillion. But, going by past records and seeing the state of some of the projects or listening to the silence of others we believe that no more than Rs.1 trillion would be commissioned during the December 2017 quarter.

The numbers are no different for the March 2018 quarter. But again, reality would not be anywhere close to the scheduled Rs.3.2 trillion worth of commissioning from 669 projects that should be commissioned by then as per currently known plans.

The top ten projects, by value of investments, that are scheduled to be completed during the second half of 2017-18, envisage an investment of Rs.1.5 trillion. These account for 22.5 per cent of the total investment scheduled for completion. An examination of these projects indicates that half of these are unlikely to meet their completion dates. Five projects worth a total investment of Rs.927 billion are likely to be completed and the rest may spill over into the next year.

The largest project scheduled for completion is Air India’s Rs.275 billion fleet expansion. The government informed the Lok Sabha that the acquisition would happen as planned and so we believe it will. We also believe that the next big project - Power Grid Corpn’s Rs.213 billion project in Chhattisgarh will be completed by December 2017 as reported by the Central Electricity Authority. And so will SAIL’s Rs.188 billion Bhilai Steel Expansion Project.

But, we doubt that GSPL India Transco will complete its Rs.137 billion gas pipeline project by December 2017 because it has provided no information for a long time. Similarly, Power Grid Corpn may not be able to complete its North East - North Western Inter-connector Project by March 2018 because the project is linked to hydro power project that is facing agitation. Lanco Amarkantak Power may not be able to complete its Pathadi Phase III & IV power project since Lanco faces insolvency proceedings.

These are some examples to illustrate the uncertainty around project completions.

We therefore believe that the total projects completed during 2017-18 would be close to Rs.4 trillion. Of this, Rs.1.8 trillion worth of projects have been completed (assuming that the currently known completion of Rs.1.6 trillion would be revised upwards) and the rest would be completed during the second half of the year.

Unemployment Rate
Per cent
5.4 -0.0
Consumer Sentiments Index
Base September-December 2015
95.6 0.0
Consumer Expectations Index
Base September-December 2015
96.0 0.0
Current Economic Conditions Index
Base September-December 2015
95.0 0.0
Quarterly CapeEx Aggregates
(Rs.trillion) Sep 17 Dec 17 Mar 18 Jun 18
New projects 1.25 1.49 3.60 2.27
Completed projects 1.25 1.15 1.42 0.86
Stalled projects 0.69 0.88 3.41 0.30
Revived projects 0.34 0.22 0.26 0.22
Implementation stalled projects 0.78 0.71 1.92 0.03
Updated on: 16 Jul 2018 12:20PM
Quarterly Financials of Listed Companies
(% change) Sep 17 Dec 17 Mar 18 Jun 18
All listed Companies
 Income 7.9 12.0 10.4 18.1
 Expenses 9.0 13.0 17.1 21.2
 Net profit -18.0 -14.3 -80.7 7.3
 PAT margin (%) 5.5 4.8 1.2 19.3
 Count of Cos. 4,501 4,491 4,280 25
Non-financial Companies
 Income 8.2 13.3 11.9 18.2
 Expenses 8.1 12.3 12.8 22.2
 Net profit -6.0 13.2 -1.6 5.7
 PAT margin (%) 6.2 6.4 6.6 20.1
 Net fixed assets 9.2 11.9
 Current assets 2.9 8.2
 Current liabilities 11.0 10.6
 Borrowings 3.4 1.6
 Reserves & surplus 7.9 8.0
 Count of Cos. 3,466 3,469 3,317 19
Numbers are net of P&E
Updated on: 16 Jul 2018 12:20PM
Annual Financials of All Companies
(% change) FY15 FY16 FY17 FY18
All Companies
 Income 5.6 1.8 5.8 12.3
 Expenses 5.7 1.9 5.8 17.9
 Net profit 0.1 -9.3 26.2 -51.0
 PAT margin (%) 3.0 2.8 3.5 3.6
 Assets 9.5 10.2 7.3 14.1
 Net worth 8.5 11.3 7.0 11.0
 RONW (%) 5.8 4.9 5.9 4.8
 Count of Cos. 26,056 24,316 21,815 218
Non-financial Companies
 Income 4.8 1.0 5.7 9.8
 Expenses 5.0 0.3 5.9 9.3
 Net profit -8.5 20.4 21.4 11.9
 PAT margin (%) 2.0 2.5 3.0 13.4
 Net fixed assets 13.3 17.4 6.5 21.2
 Net worth 7.0 12.0 5.7 5.3
 RONW (%) 4.6 5.2 6.1 17.7
 Debt / Equity (times) 1.1 1.1 1.0 0.2
 Interest cover (times) 1.9 1.9 2.1 16.0
 Net working capital cycle (days) 66 65 62 -12
 Count of Cos. 21,269 20,387 18,246 150
Numbers are net of P&E
Updated on: 04 Jul 2018 4:50PM