Strong operating cash flows help companies maintain capex momentum

livemint.com:

Mint analysis of consolidated financials of over 1,800 companies showed that the cash flow for purchase or creation of fixed assets (CFA) by these companies, or simply capex, increased by 19% in FY24. This was nearly the same as the 20% compound annual growth rate (CAGR) recorded during FY21-23, but a significant improvement from the -1.6% CAGR during FY19-21 The analysis is based on a common sample of companies for which data has been available for the last six years. The data excludes BFSI (banking, financial services, and insurance) and IT services.

Among the top spenders are Reliance Industries Ltd (RIL) with a capex of over ₹1.3 trillion last year. This is followed by Bharti Airtel Ltd, Oil and Natural Gas Corp. Ltd, Tata Motors Ltd and NTPC Ltd.

As such, the aggregate capex of all companies under this study stood at ₹8.9 trillion in FY24 as against ₹14.1 trillion of net cash generated from operating activities (CFO). Note that the CFO rose even higher, at 26%, than the capex. CFO is an important source of funds for companies and reduces the need to borrow for expansion.

Interestingly, the CFO was high during FY19-21 period also, growing at a sharp 33% CAGR, aided by the commodities boom and higher profit margins due to supply chain disruption. However, companies chose to conserve cash rather than invest because of subdued demand. In the last three years, these companies invested a total of ₹22.1 trillion, whereas their long-term borrowings rose by only ₹4.2 trillion.