India Strategy - Capacity Utilisation Of Cyclicals Rising Faster Than Headline Numbers: ICICI Securities

ICICI Securities Report

Capacity utilisation stood at a robust 74% during Q2 FY24, although it has likely risen sharply going by the rise in manufacturing Purchasing Managers' Index during Q4 FY24. Also, headline capacity utilisation number provides little insight into some of the ‘offsetting effects’ at sector level, except for a few where utilisation levels have been disclosed such as steel, cement, etc.

However, implied capacity utilisation trends across sectors can be observed using sector level Index of Industrial Production data (reflects ‘volume growth’) and ‘asset turnover' ratios.

The latest trends indicate cyclical and capital intensive sectors related to auto, metals, capital goods, cement, petroleum products etc. are currently driving higher utilisation levels.

However, headline utilisation levels have been dragged down by relatively asset light sectors, largely related to consumption (apparel, food, furniture, electronic, wood, tobacco, chemicals, etc.) although pharma and beverages have grown their utilisation levels at a faster pace.

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