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Capital Expenditure Overrun for Corporates

October 15, 2008

Credit Suisse studied some 34 of the large CAPEX projects by various Indian companies and found that the projects are expected to be 19-months behind schedule with 30% cost esclation.

The time overrun is the highest for greenfield steel projects as they are stuck in land acquisition or mine allotment. Excluding them, the average delay is 18 months and cost overrun is 15%. These delays increase the investment getting shelved which in turn adversely affects new capex announcements. India’s project execution history in the last 12 years suggests that shelved investment was more than the completed investment and almost a sixth of the announced capex.

Reasons for delay of projects:

  • 50% Land Acquisition
  • 20% Input Shortage
  • 13% Finance problems
  • 11% Scope change
  • 11% Implementation delays
Going forward expect financing problems to ground or snail’s-pace progress of most projects.

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