April 30, 2014 12:00 pm JST

Indonesia's Astra International to boost investment 69% in 2014

WATARU SUZUKI, Nikkei staff writer

Prijono Sugiarto, right, president director at Astra International, speaks to the press in central Jakarta on Tuesday.

JAKARTA -- Indonesian conglomerate Astra International plans to increase its capital spending by nearly 70% to 20 trillion rupiah ($1.8 billion) in 2014, a record level for the company, in an effort to expand its infrastructure businesses.

     "We expect this year's capital expenditure to be the biggest in Astra's history," Prijono Sugiarto, president director at Astra International, told the press Tuesday following the company's annual shareholders meeting in central Jakarta. Its capital spending for 2013 was 11.8 trillion rupiah. The executive said Astra "will increase our investments in infrastructure."

     Of the total spending, 2.5 trillion rupiah will go toward building toll roads, a big leap from the 1 trillion rupiah invested in 2013. The majority of this will go toward constructing a 40.5km highway in West Java that is expected to be completed by the end of the year.

     Capital spending for Astra's palm oil plantation business, operated by subsidiary Astra Agro Lestari, will jump by over 60% to 4.5 trillion rupiah. The company plans to build a plant for processing crude palm oil in Sulawesi.

     The company is setting aside 5 trillion rupiah for its automotive business, which makes up roughly half its annual revenue. Of that amount, some 2.4-2.5 trillion rupiah will be allocated for Astra Otoparts, its parts-manufacturing subsidiary.

     The biggest car distributor in Indonesia is encountering intense competition amid the economic slowdown. Net profit at Astra's automotive business in the first quarter of 2014 declined 5% on the year to 2 trillion rupiah. Despite selling 173,000 cars, up 12%, and 1.3 million motorbikes, up 4%, margins were squeezed because competition forced carmakers to slash prices.

     But Astra managed to boost net profit by 10% to 4.7 trillion rupiah, supported by strong performances in its palm oil and heavy equipment businesses.

     The company expects demand for cars to recover in the medium to long term. "There is still room for growth in Indonesia's car market," said Sudirman Maman Rusdi, director at Astra International. "Currently, there are only 45 cars for every 1,000 citizens in Indonesia, a level significantly lower than those in developed countries."