BUSINESS
Corporate India’s capacity utilisation too remained muted at 74% in Q1FY25 after recovering to a 44-quarter high of 76.8% in the fourth quarter of last fiscal year, data from RBI’s Order Books, Inventories, and Capacity Utilisation Survey show. Also, the companies’ inventory-to-sales ratio rose to 67.4% in April-June quarter this fiscal year as compared with 65.4% in the previous quarter, indicating persisting weakness in consumption demand. While the ratio of inventory-to-sales peaked at 113.8% in three months to June 2020 during the heights of Covid pandemic, it had remained range bound between 49% to 55% from FY08 to FY19. It has remained above 60% for 10 quarters in a row till June this year, indicating that companies will have to adjust their production and new investments to ease inventories with dealers. Both the finished goods inventory-to-sales and the raw material-inventory-to-sales at 26.1% and 24.8%, respectively in the quarter ended June this year remained close to their levels in the previous quarter. Madan Sabnavis, chief economist, Bank of Baroda , says while inventory ratio was up, that of finished goods was down marginally. “Hence it was not weaker demand but companies having higher inventory of raw material and work in progress. We need to see how demand shapes up this quarter.” Radhika Piplani, chief economist, DAM Capital, however, feels dealers are sitting with high inventory in a few sectors like auto . “Expectations of demand pickup in October and November remain, with discounts on offer. This is expected to lead to some improvement in consumption. But sustainability of it post the festive season remains questionable as of now.” The data from RBI show that capacity utilisation rate in the manufacturing sector has dipped to 74%, a level seen in the three months to September last year on the back of general elections. In fact, capacity utilisation rate has consistently remained above 70% from the third quarter of FY22 after hitting the lowest level of 47% in the first quarter of FY21. It peaked at 83.2% in the fourth quarter of FY11. Anitha Rangan, economist, Equirus Securities, says the muted capex was largely due to heat waves, and central elections. “Heading into Q2FY25, until August we have not seen a meaningful pick up in government capex. In private capex, there are segments led by services and pockets of manufacturing like chemicals, electricals and electronics (PLI-led) seeing some push.” The total number of companies surveyed by the RBI increased to 800 in the three months to June this year from the lows of 145 in March 2020, indicating that many small and medium enterprises may have been included in the survey. However, during the early years of the survey the number of companies peaked at 1,386 during the quarter ended September 2008. None
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