Low level utilization of capabilities in the industrial sector

New Delhi: The asset turnover ratio of Indian industry has come down to around 50 per cent in FY2021. This indicates that capacity utilization levels in all sectors may be further reduced. At the same time, it could raise questions about the companies' ability to expand to a new level.

In FY2030, the ratio was 9 per cent and in FY2008, the record was 118 per cent. Experts expect the asset turnover ratio and capacity utility to improve in FY40. But he said companies would come forward for the area when the ratio is around 100 per cent.

Dhananjay Sinha, managing director and chief strategist at JM Financial Institutional Equity, said the asset turnover ratio is considered an important indicator of capacity utilization in the industrial sector and the latest ratio shows that companies are not using their full potential in most sectors. In that they have less scope for expansion or new projects.

"Companies will only invest capital when the ratio is close to 100 per cent and the market is bullish," he said. For example, in FY 2021, sales of passenger vehicles in the domestic market were at the level of FY16 and sales of two-wheelers were the lowest in seven years. The automotive industry accounts for about a quarter of the total manufacturing in the country.

Excluding banks, non-banking financial companies and the oil and gas sector (but including Reliance Industries), the consolidated net sales of nine companies fell by 3 per cent to Rs 4.5 lakh crore in FY11, the lowest in three years. In comparison, the net profit of these companies was Rs. 4.5 lakh crore, an increase of 3 per cent over the previous period.

Companies are also reducing their approach to new projects due to poor demand outlook. By the companies included in the sample, Rs. In the progress of Rs. 3.5 lakh crore, the consolidated capital work was Rs. 4.5 lakh crore, the lowest in 11 years. Now let's see how many projects are started.