PLI (Production-Linked Incentive) scheme of the government aims at providing incentives to the companies with a vision of making India a hub for manufacturing and exports. Under the scheme, eligible entities receive incentives on incremental sales from products manufactured in domestic units. The scheme has been introduced to spur domestic manufacturing and reduce import bills.
The government approved the Production-Linked Incentive scheme for 10 sectors on November 11. These are pharmaceuticals, automobiles and auto components, telecom and networking products, advanced chemistry cell batteries, textile, food products, solar modules, white goods, and specialty steel. It will be operational for five years with a total estimated outlay of Rs 1.45T. The scheme will be implemented by the concerned ministries/departments. Savings from one PLI scheme of an approved sector can be utilized to fund another sector. Need of PLI scheme:
PLI scheme is a welcome step because the sectors such as pharmaceutical ingredients and medical devices manufacturing are capital intensive sectors. For this reason, these sectors need a long time before they start generating returns. Also, these sectors demand a ramp-up in manufacturing initiatives across the board, and the government cannot continue to invest directly. Instead, the government can invite global companies with sufficient capital to set up capacities in India. Impact of PLI scheme on various sectors Large scale electronics manufacturing:
- Incentive: 4% to 6% on incremental sales (against base year) of goods manufactured in India.
- Target segments: mobile phones and specific electronic components.
- Tenure: five years from the base year as defined (FY19–20).
- Eligibility: subject to thresholds of incremental investment and incremental sales.
PLI scheme will bring additional investments to the tune of Rs 11,000 crore in the field of electronics manufacturing. Also, the scheme will generate job opportunities both directly and indirectly, calibrating the consumption power of the people. Domestic value addition is expected to advance to 35–40% from the current 15–20% in the case of mobile phones and 45–50% for electronic components. Telecom Sector:
The government approved a Rs 12,195 crore PLI scheme
for telecom gear manufacturing, which will position the country as a global powerhouse for the production of such equipment ahead of the 5G rollout. The scheme is expected to lead to an incremental production of about Rs 2.4T, with exports of about Rs 2T over the next five years and bring in investments of more than Rs 3,000 crore.
According to official data, the core ‘component’ of this scheme aims to offset the import of telecom equipment worth more than Rs 50,000 crore.
The scheme is estimated to generate 40,000 direct/indirect employment opportunities. It is also likely to generate tax revenue of Rs 17,000 crore from telecom equipment manufacturing. As per the scheme, the government will give 4–6% incentive to eligible companies on incremental sales of manufactured goods for five years. MSMEs will get a 4–7% incentive in the first three years of production. Pharma:
The government approved the PLI scheme for bulk drugs and medical device manufacturing. The scheme received a good response from the various manufacturers, as it received 215 applications from 83 bulk drug makers and 28 applications from 23 medical device manufacturers.
It has approved the first set of five pharma projects, worth a total committed investment of Rs 3,761 crore, under the scheme for promoting the domestic manufacturing of bulk drugs and active pharmaceutical ingredients. Air Conditioner Segments:
Currently, about 30% of the finished RAC are being imported in India, which was worth Rs ~4,200 to 4,500 crores in FY2019. Components worth equal value are being imported in India with respect to room air conditioners. The RAC industry, which is currently valued at about Rs 9,000 crore, is expected to reach 2.5x–3.0x of the current levels in FY25E based on the current industry growth estimates, and the component ecosystem currently for the RAC industry is moderately developed in India. Due to these concerns, the government covered the air-conditioner segment under the PLI scheme. Amber Enterprises India
The Punjab-based company engages in the manufacturing of home appliances such as air conditioners, microwave ovens, refrigerators, washing machines, heat exchangers, plastic extrusions, and vacuum forming. It has a dominant presence in RACs (complete units) and deals in major RAC components with 10 manufacturing plants across India. It caters to most of the major AC players in the country. In FY20, it acquired Sidwal Refrigeration Industries Private Limited, which has expertise in manufacturing HVACs for railways, metros, and buses. O’Neil View:
The stock, from a technical standpoint, is comfortably placed above its key moving averages, around 24% and 62% from 50- and 200-DMA.
The stock broke from a 10-week stage-three consolidation pattern and made a “power to pivot flag.” It has a fair EPS Rating
of 72 and a strong Buyer Demand of A+. RS Rating of 82 is trending higher. The number of funds holding the stock increased 40% q/q in Q3 FY21. Dixon Technologies Dixon Technologies
is the leading player in the electronic services manufacturing (EMS) space in India, with diversified products in various sub-segments of the electronics vertical. The company offers cost-effective consumer products in India through leading domestic as well as global retail brands. The six main divisions are Consumer Electronics, Home appliances, Lighting Solution, Mobile phones, Security Devices, and reverse logistics. Dixon produces various products from Voltas, Samsung, Xiaomi, Wipro, Croma, and many others. Dixon is closely eyeing related PLI opportunities in wearables, laptops & tablets, which leverage its core competencies in electronic manufacturing. O’Neil View:
The stock, from a technical standpoint, is comfortably placed above its key moving averages, around 33% and 108% from 50- and 200-DMA.
It has a great EPS Rank of 97 and a strong Buyer Demand of A+. RS Rating of 96 is trending higher. The number of funds holding the stock increased 49% q/q in Q3 FY21. Crompton Greaves Crompton Greaves
is one of India's leading consumer electrical companies present in the electrical consumer durables and lighting segments. It manufactures and markets a wide range of consumer products ranging from fans, pumps, and appliances (water heaters, air coolers, mixer grinders, toasters, irons) in the electrical consumer durables (ECD) segment to the full range of lighting products. O’Neil View:
The stock broke out from a flat base pattern in December, and it is currently hovering around its 50-DMA
It has a good EPS Rank of 88 and a good Buyer Demand of B+. It has a fair RS Rating of 67, which is trending lower.
The number of funds holding the stock increased 30% q/q in Q3 FY21. Sterlite Technologies Sterlite Technologies
Limited, formed in 1988, is a digital technology company with offices in India, China, the U.S., SEA, Europe, and MEA. It is listed on BSE and NSE of India. It has 425 patents and is active in over 150 countries. The company mainly designs and integrates these digital networks for its customers, with core capabilities in Optical Interconnect, Virtualized Access Solutions, Network Software, and System Integration. It is also an end-to-end solution provider for global digital networks. O’Neil View:
It advanced more than 14% after a flat base pattern breakout on December 29, 2020, and is trending in the bullish territory above all key moving averages.
It has a Buyer Demand of A with a fair EPS Rating of 79. Good RS Rating of 76 with upward trending RS line.
The stock is facing resistance near its 200-WMA on the weekly chart.
Once the stock crosses the price of Rs. 210–215, it will open a new upside window and give another rally in the coming weeks and months. Tejas Networks
The company engages in the production of optical and data networking products.
The company’s products include converged packet optical, packet transport network, and enterprise Ethernet switches, as well as provides mobile backhaul, video transport, and wireless broadband access. It serves telecom carriers, utilities, media, and defence sectors worldwide. O’Neil View:
The stock has fair EPS strength of 71 and a good Buyer Demand of A+. RS Rating of 97 is good and RS line is trending higher. The number of funds holding the stock also increased 29% q/q.
The stock has given a breakout with cup formation on February 5 and is trending higher with all key moving averages. Divis Laboratories Divis Laboratories
Limited is an Indian producer of active pharmaceutical ingredients (APIs) and intermediates headquartered in Hyderabad, Telangana, India. The company manufactures and custom synthesizes generic APIs, intermediates, and nutraceutical ingredients. The company is recognized as a ‘Reliable Supplier of generic APIs (Active pharmaceuticals ingredients) and a trustworthy ‘Custom Manufacturer’ to Big Pharma and is also among the top API manufacturers in the world. Recently, the company has reached the milestone of being one of the top 3 API manufacturers in the world and one of the top API companies in Hyderabad. O’Neil View:
The company has a good fundamental and technical profile with an EPS Rank of 90 and a good Buyer Demand of B+.RS Rating
is currently placed at 50 and has staged a downside reversal over the last six weeks.
The stock recently broke out on November 9, 2020, and advanced around 14% post that.
Currently, the stock is making a pattern of a cup-with-handle formation and may give another chance to buy once it breaks above 3,920–3,925. Disclaimer:
This is for education purposes only and should not be construed as an buy/sell recommendation. Past performance never guarantees future results.