4 Stocks that can benefit from Govt’s PLI Scheme.

PLI scheme for White Goods Manufacturers- Air Conditioning and LED Light Bulbs has been approved by the government. Readout more about this and stocks likely to be get benefited from this scheme in this blog.

Introduction:

On Wednesday, 8^th of March 2021, Commerce and Industry Minister Mr. Piyush Goyal announced the Production-Linked Incentive Scheme for White Goods- Air-Conditioners and LED Bulbs. With the approval of this scheme for the Air Conditioning business, Government aims to boost domestic manufacturing.

The government has provided a total outlay of Rs. 6,238 Cr.for this white goods consumer durables segment.

Market  Overview- Air Conditioners:

i) Current size of the Air Conditioning Market in India is Rs. 16,000 Cr. It is expected that this market can reach Rs. 1 Lakh Cr. in the coming 9 years.

ii) Accordingly, the Growth Rate in Revenue of the Air-Conditioning Business seems to be around 22% in the coming 9 years.

iii) If any company in this segments outperforms other players then account of enhanced Operating Leverage, then that company can also grow their operating profit margin.

For instance, if there is revenue growth of 22%, and the company can maintain the operating profit margin of around 25% to 30% and with the help of these incentives the net profit of the company can also be increased, and ultimately this particular sector can also be rewarded with premium valuation.

iv) This segment offers both earning visibility as well as growth visibility.

Comparison with China:

• Market Size of China’s Air Conditioner Production is around 12 Cr. Units, whereas India is just having production of around 75 lakh units.
• This presents the huge market visibility for the Air Conditioner Players.
• This sector will also be benefited from increased domestic consumption, an increase in per capita income, and a rise in disposable income.
• In China, out of total production of 12 Cr. units, 5 Cr. units are exported, and the rest 7 Cr. are domestically consumed.
• In India, MNC players are working on China Plus One Strategy, where they want to increase their dependency on China and they are focusing on increasing production in India.
• And then comes the role of the PLI Scheme, which will be benefiting the players for domestic manufacturing.
• The expected market size of AC of Rs. 1 lakh Cr. is not just only about domestic consumption, but it also consists of the export market.

4 Stocks to keep on Radar:

i) Voltas

ii) Johnson Controlled Hitachi Air Conditioners

iii) BlueStar

iv) Amber Enterprises

Conclusion:

The Air Conditioner segment is the growing market in India with the availability of abundant market size. The AC business is expected to be around Rs. 1 lakh cr. in the coming 9 years in India, and schemes like PLI will certainly boost this segment to a higher extent. Hence, these 4 listed players in this business segment should be on one’s radar.