Backed By Buoyed Demand, PV OEMs Rev Up Capacity Expansion Plans: ICRA

The demand for passenger vehicles has remained healthy since the turn of the calendar year, aided by strong underlying demand and an easing up of semiconductor shortages (thereby enabling improved production levels across OEMs). As per an ICRA note, the PV industry wholesale volumes are expected to touch an all-time high of 3.7-3.8 million units in FY2023 (a growth of 21-24 per cent over the previous fiscal), driven by robust demand. With ease in supply chain constraints and semi-conductor shortage, capacity utilisation 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 capacity utilisation levels of the industry had been significantly impacted (most pronounced in H1 FY2022) as a result of the pandemic-induced disruptions and semiconductor shortage during the past 

“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 in excess of Rs. 250 billion towards capacity expansion for the next few fiscals. Besides CAPEX by the OEMs, auto component manufacturers are also expected to scale up their investments to support their customers," said Rohan Kanwar Gupta, Vice President & Sector Head - Corporate Ratings, ICRA.

Commenting on the same he added, "While adding new capacities will marginally moderate the capacity utilisation levels over the next few years, given the healthy demand environment, the utilisation is likely to remain at comfortable levels (i.e., around 70%). With the OEMs also 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.” 

While the CAPEX outlay is likely to increase significantly, a majority of it will be met through healthy cash accruals and parent funding support, apart from inorganic fundraising in some of the recently formed EV subsidiaries. Thus, an increase in leverage is unlikely for most OEMs, and the credit profiles are expected to remain healthy.