A Full Update on India's Massive PLI Boost to Manufacturing. Here are 6 Companies Already Raking it in...

When the product linked incentive scheme (PLI) was first launched in 2021, the government aimed at investing Rs 1,970 billion (bn), creating 60 lakh jobs and producing goods worth Rs 30 trillion (tn) in the span of five years.

According to economic survey, as of December 2022, the scheme has already seen actual investments of Rs 475 bn, created 300 thousand jobs, and produced and sold products over Rs 3.8 tn.

Currently, the PLI scheme applies to fourteen sectors, including pharma, electronic goods, solar, textiles, and food processing.

The government plans to include other sectors as well going forward, such as leather and toys, among others.

So, how does the PLI scheme benefits companies?

The PLI scheme aims to increase exports, enhance the competitiveness of Indian companies, and help in scaling up their capacities to expand their footprint in domestic and international markets.

There are more than 717 companies that have received approval under the scheme as of December 2022. Although all the firms have a slice of this pie, some small and offbeat companies benefit the most.

We have shortlisted six such companies raking in all the moolah. These companies are the prime beneficiaries of the PLI scheme.

#1 Dixon Technologies

First on the list is Dixon Technologies.

The company is engaged in manufacturing electronics such as televisions, washing machines, smartphones, LED bulbs, and CCTV security systems.

It also offers reverse logistics solutions, including repair and refurbishment services for mobile phones, set-top boxes, and LED TV panels.

Although the company hasn't manufactured its own brand, it has long-term contracts with some of the most well-recognised brands, such as Samsung, Xiaomi, Panasonic, OnePlus, and Philips.

Dixon Technologies has eighteen manufacturing facilities with a capacity to produce 5.5 million (m) units of consumer electronics, 378 m units of lighting products, 51 m units of mobile phones, 8.4 m units of CCTV, and 1.8 m units of DVR as of March 2022.

Since the PLI scheme was first introduced in 2020, Dixon Technologies has received five approvals for manufacturing mobile, telecom & networking products, IT hardware, air conditioners, and LED lighting.

It was the first Indian company to achieve the revenue, capex, and investment thresholds to be eligible for the incentives from the scheme.

Under the PLI scheme, the company is investing heavily to expand its capacity across all product lines. In the financial year 2022, it invested Rs 4.1 billion (bn) towards capex and plans to spend another Rs 3.2 bn for capacity expansion across existing and new verticals.

Apart from this, it is also investing around Rs 1 bn for the next five years for backward integration.

Dixon Technologies is also foraying into a new market for telecommunications equipment, focusing on routers, modems, and gigabyte passive optical networks.

The company's financial performance was very healthy owing to the ramp-up in production and higher demand under PLI. The revenue has grown at a CAGR (compound annual growth rate) of 30.4% in the last five years.

Its net profit has grown at a CAGR of 25.6% during the same time.

The company's debt-to-equity ratio has slightly gone up to 0.3x. However, it has a healthy interest coverage ratio of 6.2x.

Despite a strong performance, the company's shares have fallen by 24.3% in the past one year due to a slowdown in demand for mobile phones.

So far, the company has received Rs 2 bn as incentives from the PLI scheme. The company's profit margins are expected to rise as the government releases more incentives.

Going forward, capex, expansion into new verticals, and government incentives will drive its revenue and profit growth.

To know more, check out Dixon Technologies' financial factsheet and latest quarterly results.

#2 Amber Enterprises

Second on our list is Amber Enterprises.

It is India's largest contract manufacturer of room air conditioners (RAC) and the largest supplier of roof-mounted package unit air conditioners for the Indian Railways.

The company dominates India's original equipment manufacturer (OEM) and original design manufacturer (ODM) market for room air conditioners.

It dominates the RAC market with a market share of 26% as of September 2022. Amber also has a diversified product portfolio, including window air conditioners (WAC), indoor units (IDUs), outdoor units (ODUs) of split air conditioners (SACs), and inverter RACs.

The company has 23 manufacturing facilities in India, focusing on different product categories. Each facility has a high degree of backward integration which helps the company reduce its dependence on external suppliers.

Amber Enterprises is a strong beneficiary of the PLI scheme for AC and its components. It received approval for investing Rs 4 bn in expanding its AC components and electronic division capacity.

In the financial year 2022, Amber Enterprises incurred a capex of Rs 4.3 bn on existing manufacturing plants, research and development (R&D), and new greenfield sites. It plans to spend another Rs 6 bn on capex to expand its capacity.

The company invested in acquiring Amber Enterprises USA and AmberPR Technoplast India, which will help the company enhance its backward integrated solutions.

It also acquired Pravartaka, a company that will help Amber Enterprises manufacture injection moulding tools and expand its component segments.

The capacity expansion given by the PLI scheme will help Amber Enterprises strengthen its domestic position and establish a strong foothold in the export market.

Coming to its financial performance, in the past five years, Amber's revenue has grown at a CAGR of 15.2%, driven by high replacement demand.

The net profit has grown at a CAGR of 12.3% on the back of backward integration efforts.

Despite investing heavily in capex, the company has a manageable debt with a debt-to-equity ratio of 0.2x.

However, shares of Amber Enterprises have underperformed big time due to its poor quarterly results.

Going forward, the company is expected to benefit from a low penetration of RAC, high replacement demand, and growing urbanisation.

To know more, check out Amber Enterprises' financial factsheet and latest quarterly results.

#3 Poly Medicure

Third on the list is the largest exporter of plastic medical disposables and surgical items, Poly Medicure.

The company manufactures disposable medical items such as IV cannulas, blood bags, blood collection tubes, and infusion and transfusion sets.

It has nine manufacturing facilities, six in India and one each in China, Egypt, and Italy, that manufacture products across various categories, including oncology, infusion therapy, anaesthesia, dialysis, respiratory care, and urology.

Poly Medicure applied for a PLI grant in 2020 and got approval for manufacturing a dialyser, dialysis machine, peritoneal dialysis kits, fistula, bloodline, haemodialysis catheter, and transducer protector.

Under the scheme, the company is investing in expanding its manufacturing capacity in its Jaipur and Faridabad plants. It also plans to set up two new manufacturing plants in India to support the growing demand for medical disposables.

At present, its product portfolio comprises 160 stock-keeping units (SKU). It plans to expand its product portfolio in existing and new verticals by investing in R&D.

The company also has an impeccable financial record. In the last five years, its revenue has almost doubled, while net profit has more than doubled.

The revenue and profit growth were mainly driven by volume growth, in-house tool design and R&D facilities.

It also paid off its debt and became a debt free company in the financial year 2022.

All these efforts have reflected in its share performance. In the last year, the company's shares have gained around 24.8%.

Going forward, the company's revenue growth will be driven by high exports due to the government's push to manufacture medical devices in India.

To know more, check out Poly Medicure's financial factsheet and latest quarterly results.

#4 ADF Foods

Next on the list is ADF Foods.

It is a leading manufacturer of prepared ethnic food, offering frozen foods, ready-to-eat (RTE) items, ready-to-cook (RTC) items, chutneys, sauces, pickles, spices, pastes, dips, and milk drinks.

The company has a diversified portfolio of over 400 products which are marketed through eight brands, namely Ashoka, Camel, Truly Indian, Aeroplane, Nate's, PJS Organics, ADF Soul, and Khansaama.

ADF Foods has a strong domestic distribution network and also exports to over 55 countries.

It has three manufacturing facilities with a total capacity of around 28 thousand metric tons (MT).

Currently, the company is investing in setting up another plant in Surat to increase its frozen foods capacity.

It is also undertaking de-bottlenecking exercises at all the existing facilities to improve efficiency and reduce costs.

The company derives close to 99% of its revenue from exports. Hence it received PLI approval from the government for branding and marketing expenditure abroad in 2022.

ADF Foods will receive 50% of the budgeted outlay, or 3% of sales, or a maximum of Rs 613.5 m from the government as incentives.

This will help the company increase its export revenue through increased branding.

The company is also investing to improve its revenue in the existing and new markets. It has established two warehouses in the USA to improve its international presence.

The company has also launched new products under its existing brands to improve its product portfolio. It entered plant-based products and frozen dessert categories by launching an entire range of products.

ADF Foods is also investing in setting up new warehouses in key markets to increase sales through penetration.

Coming to its financials, the revenue has grown at a CAGR of 14.5%, driven by volume growth. The net profit has grown at a CAGR of 21.8%, driven by operating efficiencies.

Despite investing heavily in capex, the company has zero debt on its books. All this shows that the company is poised for growth in the medium and long term.

In the past one year, shares of the company have gained 10%.

Going forward, the PLI boost, the company's expansion plans, and the growing demand for ready-to-eat foods will drive its growth in the medium term.

To know more, check out ADF Foods' financial factsheet and latest quarterly results.

#5 Tejas Networks

Fifth on the list is a Tata Group company, Tejas Networks.

Incorporated in 2000, it is among the earliest telecom product companies to build homegrown technology products in networking and optical backhaul crucial for high-speed broadband.

The company designs and manufactures optical transmission products, which find application in cellular backhaul, high-speed broadband, and backbone network of telecom service providers for transportation of data and voice over optical fibre.

Its products are also used in defence communication networks and by utility companies.

The company's customer base includes various telecom operators, web-scale companies, government agencies, and internet service providers.

It also has an overseas presence in several countries, including the USA, Mexico, the UK, Brazil, South Africa, Bangladesh, and UAE.

In November 2022, Tejas Networks received approval under a design-led PLI scheme for telecom and networking products.

Under the scheme, the company plans to invest Rs 7.5 bn for manufacturing telecom products. It plans to manufacture a gamut of 4G and 5G wireless gear for its clients.

The company spends heavily on R&D, given the nature of its industry. Due to high R&D spending, the company has over 350 patents and 300 silicon intellectual properties (IP) on its name.

This has helped the Tata group company secure orders from many domestic and international players. It's no wonder that the company has an all-time high order book worth Rs 19.3 bn at the end of March 2023.

In FY23, the company achieved a milestone and closed the financial year 2023 with the highest-ever revenue.

Tejas Networks is also a debt-free company and has a healthy cash position.

All this didn't go unnoticed as shares of the company have gained around 60% in the past one year.

Going forward, the company's healthy order book, and continuous innovation, will drive its revenue growth in the medium term.

To know more, check out Tejas Network's financial factsheet and latest quarterly results.

#6 HFCL

Last on the list is the largest producer of optical fibre in India, Himachal Futuristic Communications (HFCL).

It is a diverse telecom infrastructure enabler with active interest spanning telecom infrastructure development and manufacture and supply of high-end telecom equipment, optical fibre, optic fibre cable (OFC), indoor & outdoor Wi-Fi 5 and 6 access points, and cloud-based network management systems.

Apart from telecom, the company serves multiple industries, including defence, railways, utilities and security & surveillance networks.

Its clients include Jio, Tata, Airtel Vodafone, Railtel, HPCL, GAIL, BPCL, and IOL. The company also serves international clients such as Saudi Railways and others spread across thirty countries.

At present, the company has five manufacturing facilities in India with 23.9 m fibre kilometre (km) of OFC capacity, 10 m km of optic fibre, 690 circuit km of FTTH (fibre to the home) cables, and 2,700 MT of impregnated glass fibre reinforcement (IGFR).

In November 2022, the company received approval to get incentives up to Rs 6.5 bn under the PLI scheme.

The company announced that it plans to invest Rs 4.3 bn in expanding its OFC capacity from 23.9 m fkm to 34.8 m fkm and optic fibre capacity from 10 m fkm to 22 m fkm.

It also plans to set up a defence equipment production facility and invest heavily in R&D to launch new products.

The company's top management said the PLI scheme would help it become globally competitive by including margin-accretive products in its portfolio.

Coming to its financial performance, in the last three years, the revenue and profit have grown at a CAGR of 2.4% and 8.8%, respectively.

HFCL also continued to remain in debt despite a heavy capex.

Check out the performance of its shares on the stock market.

Going forward, the government's PLI boost and the company's expansion plans will drive its growth.

To know more, check out HFCL's financial factsheet and latest quarterly results.

Snapshot of Manufacturing Stocks on Equitymaster's Indian Stock Screener

Here's a quick view of the above companies based on their financials.

Please note that these parameters can be changed according to your selection criteria.

This will help you identify and eliminate stocks not meeting your requirements and emphasise those stocks well inside the metrics.

In conclusion

India's manufacturing sector had been lying dormant for a long time.

However, after the government took initiatives such as 'Make in India', 'Atmanirbhar India', and PLI, the entire world is talking about the Indian manufacturing sector.

India is already leading in manufacturing iron and steel, textiles, and electronics.

The government aims for India to become a global manufacturing hub for several other products, including automobiles, semiconductors, pharmaceuticals, and speciality chemicals.

With the PLI scheme, this goal looks achievable.

The companies that received approvals under the PLI scheme can expect their revenue and profit margins to expand and competitiveness in the global market to improve significantly.

This, in turn, will positively impact their performance.

Although the scheme promises benefits, the targets set by the government are very steep. If a company fails to meet these targets, it will not qualify for the incentive, affecting its profitability.

Hence you should do proper due diligence before considering these companies for investment.

Happy Investing!

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