PLI Scheme | Top stocks under PLI scheme to invest.

 What is PLI scheme? 

PLI or Production Linked Incentive Schemes are a kind of government incentives plan which are announced to boost the production capabilities of manufacturing companies. Here incentives will be provided to companies to pursue high production targets.

In the latest union budget 2021-22, the finance minister announced Rs.1.97 lac crores outlay to boost manufacturing across 13 key industry sectors. It is expected that production of a minimum of $500 billion will happen in 5years.

 Why it is important? 

The main aim of these schemes is to help those sectors which are facing difficulties in expansion, to create economies of scale, or to boost efficiency. The government’s main objective behind the introduction of PLI is to boost internal manufacturing capabilities and achieve the long-term goal of Atma Nirbhar Bharat.

PLI scheme is a kind of output-linked scheme where incentives are provided directly to companies based on incremental sales. Incremental no. of sales i.e, sales no. above the recorded sales.

For the recorded sales, FY19-20 is taken as the base year for most. These schemes are specifically for domestic-made products for the next 5 years. As per experts, the implementation of the PLI scheme will help companies to become champions and anchor companies in their sectors. This repel effect will spread in the whole industry slowly. 

Motivational factors of government behind the introduction of PLI scheme.

• Economic activities will increase by incentive push.
• In critical manufacturing sectors, companies will get help to become globally competitive.
• Reduction in dependence on China's imported key materials and products.
• India will establish itself as a credible manufacturing destination.
• India will become an effective alternative to China for global outsourcing.
• Employment will be generated.
• Capacity will boost in critical sectors.
• Increase in the cost competitiveness of domestically manufactured goods.

By making India an export hub, the overall supply chain, and shopping logistics will improve. One big thing to note is its announcement timing which happened after Covid 19 outbreak. We are familiar that due to manufacturing restrictions, India's economy got damaged. Therefore PLI scheme will provide the necessary push to the manufacturing sector that will help it get back to its feet.

Now let us know about the major sectors for which PLI schemes have been announced.

• Auto & Auto components, 
• Electronic products & IT hardware, 
• Pharma APIs, 
• KSMs & Intermediates, 
• Medical Devices,
• Chemicals for advanced chemistry cell battery, 
• Food products, 
• Speciality steel, 
• Telecom & networking products, 
• Textiles & apparel,
• White goods like lightings, 
• ACs, components, 
• High-efficiency solar PV modules.

 Auto & Auto components 

The biggest PLI scheme has been announced for the Auto & auto components sector. It is expected an outlay of Rs.57041 crores. Soon all details of the scheme will be announced.

There are major 3 factors behind the introduction of the Auto PLI scheme.

 1.  Less dependent India on Chinese imports in the auto industry like electronic, electrical, and semiconductor parts.

 2.  Promote domestic manufacturing of electric vehicles parts. Along with it will prevent a situation in the solar industry where India is the major importer.

 3.  Global automakers’ dependency on China for auto components, for them India will become an alternative source hub.

For auto components makers, the ministry has set ambitious targets. According to this, exports will double to $30 billion. Also, in 5 years 25 lakh additional jobs will be generated.

Now let's talk about companies who can benefit from auto & auto component segment PLI schemes.

 1.  Motherson Sumi. 

Motherson Sumi is India's biggest auto ancillary company. This company was formed in 1986 as a joint venture between Samvardhan Motherson Group and Sumitomo Wiring Systems. Across the world, Motherson Sumi is the leading supplier of wiring, electrical, lighting, electronic systems, metal modules, and many more products which are made for OEM (Original Equipment Manager).

Motherson Sumi is one of largest India's auto part exporters. MSS's 10-year automakers’ sales growth of 21% CAGR has been an amazing track order. It has partnerships with 26 existing JV partners in 9 countries. Maintaining 40% ROC, the company is working on reaching its $8.2 billion sales in FY21 to $36 billion by 2025. 

• Its market cap is 67153 crores.
• PE ratio is 30.9. ROE is 8.97.
• 1-year return is 89.5%.

Under the Auto component PLI scheme, Motherson Sumi can be a big beneficiary.

 2.  Bosch. 

Bosch India is part of Germany’s Bosch group. After Germany, India is the biggest Bosch development center. The company’s presence is in many industries like the 

Mobility Sector with 59% of sales;

Consumer goods with 26% of sales;

Industrial technology with 7% sales;

Energy & Building technology with 8% sales.

In India Bosch has 18 manufacturing sites and 7 development centers. The company has expertise in Internal Combustion Engines (ICE) and Electric Engines. Due to which Bosch is a big player in the power train sector. 

Bosch is involved in the IoT-enabled devices & the industrial solution segment. Due to which Bosch is also looking to become eligible in telecom & networking PLI schemes in addition to auto components PLI.

• Its market cap is 42260 crores.
• PE ratio is 32.1. ROE is 10.2.
• Debt to Equity is 0.01.
• 1year return is 11.3%.

 3.  Bharat Forge. 

Bharat Forge is part of the Kalyani group whose annual turnover is over $3 billion. Bharat Forge is India's largest exporter of auto components. 

The company manufactures ICE parts, transmission components. Also, the company offers customization and modular solutions for liquid power trains. In 5 countries, the company has 683750 MTPA forging capacity in 12 plants which is the world’s largest.

The company is also involved in forging parts for other sectors like power, construction and mining, oil & gas, defense, aerospace, rail& marine, and general engineering. In auto components, due to its widespread presence and export profile, Bharat Forge can be a beneficiary for the Auto component PLI scheme.

• Its market cap is 36030 crores.
• PE is 86.4. ROE is 4.15.
• 1-year return is 67%.

 4.  Sona Comstar. 

The company manufactures defense assemblies, gears, conventional hybrid motors. Also, the company is slowly shifting to EV and engine Nutro products. Major EV make like Ampere, JLR, Tesla, etc are customers of Sona Comstar.

The company derives 75% of its sales from exports. 25% of auto ancillary sales come from ICE-dependent goods. The rest of the sales comes from the electric vehicle or power source Nutro segments. To focus on EV components, Sona Comstar can be a major beneficiary for the auto components PLI scheme.

• Its market cap is 32111 crores.
• PE is 161. ROE is 17%.
• Return since the listing is 61.3%.

 Electronics & IT hardware. 

The scheme’s outlay is bifurcated in large-scale manufacturing & IT hardware. Rs.40951 crores are allocated for large-scale electronic manufacturing and Rs.7325 crores for IT hardware.

In the electronics & IT hardware sector, the PLI scheme is appliable for products like Mobile phones, SMT components, Semiconductor devices like transistors, diodes, etc, Passive components like resistors, capacitors, etc, PCBs and components, Sensors, and other devices for electronic applications, components for Nano EMS and Micro EMS (electro-mechanical systems), Assembly testing, marking and packaging units.

The reason for scheme implementation is to reduce dependence on China's electronic components, especially mobile phones. For example, India's manufacturing capacity fulfills 20% of India's mobile phones demand. Rest 80% of demand is fulfilled by Chinese imports.

With help of the scheme, India can be a manufacturing hub for global smartphone majors like Apple, Samsung. Additional jobs will be created. Under this PLI scheme, the government has approved 14 companies of which 10 are domestic companies like Lava International Ltd, Dixon Technologies Ltd, Info power Technologies, Bhagwati, Neolync, Optiemus, Netweb, Smile Electronics, VVDN, and Panache Digilife.

Under this PLI scheme, 4 international companies like Dell, ICT, Flextronics, and Rising Stars Hi-Tech got approval. In 4 years, the total production value of these companies is expected to be more than Rs.1.61 lakh crores. More than 36000 employment opportunities will be generated. In these approved companies, 3 are listed in the Indian stock market.

Let's see who they are.

 1.  Dixon Technologies. 

It is India's leading manufacturer of electronics. It was founded in 1993 by Sunil Bachani. In the LED tv segment, Dixon Technologies is India's biggest manufacturer. It serves its customers like Samsung, Panasonic, Xiaomi, TCL, 1+ companies.

Dixon Technologies is also an industry leader in electronic products. Philips, Havels, Cisca, Bajaj, Wipro are on its customer list. The company currently makes white goods, set-up boxes, medical devices, security systems, and mobile phones. The company manufactures feature phones and smartphones for industry leaders like Samsung, Nokia, Motorola. 

Dixon Technologies is the biggest listed player that has been approved under the electronic PLI scheme.

• Its market cap is 25321 crores.
• PE is 144. ROE is 25%.
• 1-year return is 134%.

 2.  Optiemus Infracom. 

It is a seasoned player in the Indian Mobile phones space. In India, the company runs BlackBerry and Zen. The company’s manufacturing capacity is more than 1.5 million devices per month. The company serves Lg, Jio, oppo, Micromax, HTC, 1+, and others. The company’s subsidiary is Optiemus electronics which has been approved under the PLI scheme.

This company is mainly involved in making mobile phones and mobile accessories. To manufacture products like Mobile devices, IT hardware, and automotive EV products, Optiemus has allied with Wistron.

• Its market cap is 2268 crores.
• Its PE is 21.4. ROE is 16.4.
• 1-year return is 380%.

 3.  Panache Digilife. 

Panache is 3rd listed company that got PLI approval. It was listed in 2017. It has been planted in Daman. It is setting up a new plant in Bhiwandi with an annual capacity of 5lakh units.

It manufactures IT hardware laptops, all in one's, micro pcs, desktops, tablets servers. Also, telecom products like routers, switches, and others are part of the company's portfolio. Panache is also a retail point of sale or POS solution.

• Its market cap is 67.7 crores. 
• ROE is 1.23. 
• Last year’s return is -3.42%.

 Pharma. 

This scheme has an outlay of 21490 crores. This scheme is divided into 3 parts.

1st part is for manufacturing KSMs, DIs, and APIs for 41 products which cover 53 APIs. Its outlay is 6954 crores.

The outlay of the 2nd part of the pharma PLI scheme is 15000 crores.

There are 3 categories in it and a maximum of 55 applicants. 

Let's look at the categories.

 Category A.  It is for those companies which have more than 5000 crores GMR (Global Manufacturing Revenue) in FY20.

In this category, biopharmaceuticals, complex generics, patented drugs, drugs nearing patented expiry, cell-based and gene therapy drugs are included. The maximum allocation in this category is 11000 crores. For a company, the maximum allocation is 1000 crores.

 Category B.  It is for those companies that have more than 500 crores GMR and less than 5000 crores in FY20.

Under this category, products included are APIs and KSM. The maximum allocation is 2250 crores. For a company, the maximum allocation is 250 crores.

 Category C.  It’s for those companies that have less than 500 crores GMR in FY20. Formulations like repurposing drugs, autoimmune drugs, anti-cancer drugs, anti-diabetic drugs, anti-infective drugs, psychotropic drugs, and anti-retroviral drugs will be included in this category.

This category has an allocation of 1750 crores. The maximum allocation for a company is 50 crores. This scheme will go on till FY27 and a maximum of 55 applicants will be approved. The 3rd part includes the making of 3 Bulk Drugs Barks with common infrastructure facilities.

The government’s major objective behind the introduction of the Pharma PLI scheme is to Reduce Dependence on China's imported APIs and DIs. To fulfill Indian pharma requirements, 60-70% of raw materials are imported from China.

Aurobindo pharma, Karnataka antibiotics & Pharmaceutical, Aarti Speciality chemicals, Meghmani LLP, and others are approved applicants for the pharma PLI scheme.

Talking about the 2nd part of the pharma PLI scheme in which Sun Pharma, Divis lab, Dr. Reddy's lab and Cipla can be major beneficiaries.

 1.  Sun Pharma 

Sun Pharma is India's biggest pharma and the world's 4th largest generic player company with more than 4.5 billion sales in FY21. It was found by Dilip Sanghvi in 1983. Initially, it sold 5 products for psychotherapy.

To become India's biggest pharma company, it acquired Ranbaxy in 2014. In the Indian pharma market, the company has an 8% market share. It generates 31% sales from India and 30% from the USA. It has 44 manufacturing sites and sells its products in more than 100 countries. 4th biggest therapy segments for Indian business are cardiology, euro psychiatry, gastroenterology, diabetes. It accounts for 56% of Indian sales. The company has 5 main product lines. Specialty medications, Generic medications, OTC medications, APIs, Antiretroviral medications.

• Its market cap is 187196 crores.
• PE is 32.6. ROE is 6.33%. Debt to Equity is 0.08.
• 1-year return is 54.4%.

 2.  Divi's lab. 

Divi's lab is India's biggest and world's top 3 API makers. It was started in 1990 as Divi's research center by Dr. Murli Krishna prasad. The company’s 85-90% sales come from exports. The company has 2 major businesses.

A. Manufacturing of APIs, Intermediates & nutraceuticals.

B. Custom synthesis of the molecule.

As of Quarter 1 FY21, Divi's lab sales ratio in both segments is 50:50. Divi's enjoys a market share of 60-90% for several generic APIs. 

The company has a presence in 95 countries. Divi's lab is the only Indian major pharma company that doesn't make or sell formulations. The company has 26 generic APIs in its portfolio. It is serving 12 companies among the top 25 pharma companies of the USA, eun, japan for 10 years. 

• Its market cap is 134995 crores. 
• PE is 65.9. ROE is 23.9%.
• It has 0 debt. 
• 1-year return is 61.6%.

 3.  Dr. Reddy 

Dr. Reddy, another big Indian pharma maker, was started in 1984 by Anji Reddy.

The company started its business from API manufacturing which was widely used for the OTC drug ibuprofen. Across the world, the company sells its products to more than 56 countries and operates in 48 countries. This is Pharma company that got the sputnik covid vaccine in India. The company has 3 revenue lines. 

1st Global generics.

In FY21, the company generated 81.4% sales from this segment. In this, the company sells more than 550 generic drugs. To cover oncology and auto-immune diseases, the company has 6 biological products.

2nd Pharma services & active ingredients.

In FY21, Company's 16.8% revenue came from this segment. In this segment, the company makes APIs and sells to generic formulations companies.

3rd Proprietory products. 

1.8% revenue is generated from this segment in FY21. In us, for dermatology, and urology treatment therapies, the company sells territory rights in different geography.

Dr. Reddy's subsidiary is Aurigene Discovery. It is a clinical-stage biotech company and comes in this business line.

• Its market is 82008 crores.
• PE is 47.2. ROE is 11.7%.
• 1-year return is 12%.

 4.  Cipla. 

Cipla is one of the oldest Indian pharma companies. In 1935, Dr. K.A. Hamied started it. Currently, it sells over 1500 products in 50+ dosages in 80+ countries. In branded prescription market share, Cipla is 3rd largest player in India. And one of the top 10 generic companies in the USA.

Cipla is India's single big pharma company whose 50% of sales comes from domestic markets. It operates in 3 main segments are Branded prescription, Trade generics, Consumer health.

The USA is the 2nd largest market for Cipla where it sells generic formulations. In South Africa and Sub-Saharan Africa, Cipla has a good presence. Here it sells its products through private tenders and OTC drugs. 

The company has expertise in respiratory, oncology, and antiretroviral therapies for diseases like AIDS.

• Its market cap is 76648 crores.
• PE ratio is 30.2. ROE is 14.1.
• 1-year returns are 30.9%.

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