- Date : 31/12/2022
- Read: 3 mins
Asian Paints has been a regular gainer in the bull market due to tech-led CAPEX.
Around two-thirds of Indian-listed companies have taken up tech-led CAPEX in the past few years. The CAPEX data with RBI and the annual reports of various companies prove this right. Companies are gathering intangible assets apart from goodwill, and the increase in R&D expenses is new.
Asian Paints is a great example that has been gathering vast data on the quantity, size, and color of its paint sold all around the country. They store this proprietary data for all neighborhoods. It helps in demand forecast. It added automatic truck-loading systems in Vishakhapatnam and Mysuru recently. It also uses machine learning and artificial intelligence to improve the demand forecast.
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Tech-led CAPEX: The Key Indicator
Let's look at an example to understand this key indicator:
Asian Paints has been a regular gainer in the bull market. Asian Paints purchased the first mainframe computer in 1970 for Rs. 80 and was among the first private companies in India to own it. It has since saved costs and time by digitizing its billing and inventory management. Asian Paints began using computerized color tinting machines by the decade's end. It also trained its employees in the 1980s, teaching them how to use personal computers. It also established a helpline in the 1990s for customer care. It automated everything, including supply chain management, storage, retrieval systems, and centralized order booking by 2008. The point? All these things enabled it to improve the demand forecast.
What Will Happen?
While skeptics might dismiss these data points, several indicators suggest there will be a continued CAPEX related to tech. Our country's corporate profits to GDP is at a decade high at 4.5%. It is not because of macro tailwinds but because of healthy balance sheets. We last saw the current average operating margins of 16.7% in 2005. 2011 saw the average net margin cross 8.7%. The last decade saw a few capacity additions as the companies had much debt in the last CAPEX cycle. However, India's current 60% corporate debt to GDP ratio is lower than the average worldwide. The companies have not spent large sums of money on inorganic growth nor leveraged their balance sheets. Instead, most companies decided to pay off debt and become cleaner during the pandemic. Lenders are also in excellent financial health, and the private and public sector banks have been profitable in the last few quarters.
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While we are witnessing rising interest rates, India is in an excellent position to take it in its stride. CAPEX boom does not look possible, and the boom could instead increase the corporate profits to GDP in the future. The earnings per share or your P/E denominator ratio can increase, and stocks can become cheaper.