India Inc’sasset -turnover ratio dropped to a new low Of around 70 per cent in FY21, indicating a further decline in capacity utilization across sectors last financial year owing to the pandemic.
This raises a question on the companies’ ability to kick-start-a fresh round of capacity expansion. The ratio Was 78 percent FY20 and a record high of 116 per cent in FY06. Analysts expects rise in the asset-turnover ratio and capacity utilisation in FY22 but say companies go for capacity expansion only when the figure approaches around 100 per cent.
“The asset-turnover ratio is a good indicator of capacity utilisation in the industrial sector. And the latest ratio Suggests companies in most sectors are sitting on a lot of spare capacity, which gives them little incentive for capacity expansion or new projects, according to NSADREAMS research team of business analysts.
According to us, compares go for capex only when the asset-turnover ratio approaches 100 per cent and stays above that for at least a few years. This was the case during the big capex boom before FY10. For example, sales of passenger vehicles in FY21 were at the same level as in FY16 while two wheeler sales in the domestic market last financial year were the lowest in the last seven years.
The automobile sector acoounts for nearly a quarter of all manufacturing output in the country.
Combined net sales of 682 companies, excluding banks, non-banking financial companies, and oil and gas but including Reliance Industries, were down 7 per cent in FY21 to 46.6 trillion, the lowest in the last three years. In comparison, companies’ net profits were up 55 per čent year-on-year on Slow base to reach 83.38 trillion in FY21. The protits in FY21 were, however, 2.6 per cent lower than those in FY19.
