PLI Scheme: The government rolls out various schemes aimed at developing the key sectors in the economy by encouraging companies to participate. These schemes help boost domestic manufacturing, cut down import bills, and reduce imports. The scheme that provides financial incentives to companies that develop new products and technologies is known as the Production Linked Incentive (PLI) scheme.
So in this article, let us take a look at the stocks under their specific sector that can benefit from such PLI schemes. But before that, let us understand more about the scheme.
What is the PLI Scheme?
The Production Linked Incentive (PLI) scheme is a performance-linked incentive initiative by the Government of India aimed at boosting the manufacturing sector and reducing imports. The scheme provides incentives to domestic industries to increase their production, which in turn helps create micro jobs and reduces import bills.
The PLI scheme has been introduced for 13 sectors, including automotive, electronics, pharmaceuticals, and renewable energy. As of March 2023, the government has released an actual investment of Rs. 62,500 crores under the Production Linked Incentive (PLI) scheme, resulting in an incremental production or sales of over Rs. 6.75 lakh crores, and the generation of around 3.25 lakhs jobs.
Listed below are the sectors that can benefit from the PLI scheme:
Pharma Sector
Under the Atmanirbharta initiative of the Government, the Department of Pharmaceuticals launched the PLI scheme for pharmaceuticals in 2021. The financial outlay under this PLI scheme is Rs.15,000 Cr over six years. So far, 55 applicants have been selected under the scheme, including 20 Micro, Small and Medium Enterprises (MSMEs). The financial year of 2022-2023 being the first year of production for the PLI Scheme, DoP has earmarked Rs 690 crore as the budget outlay.
The scheme aims to expand the Atma Nirbharta initiative of the government and promote domestic manufacturing and innovation in the pharmaceutical sector.
Stocks from the pharmaceutical sector that can benefit from the PLI scheme:
Dr Reddy’s Laboratories Ltd
Dr Reddy’s Laboratories is one of the four companies that received the first tranche of incentives under India’s Production Linked Incentive (PLI) scheme for the pharmaceutical sector, released by the Department of Pharmaceuticals (DoP) in 2023. The company was awarded 20 million dollars under the scheme.
Looking at the financial statement, the company’s revenue increased by around 15 percent from Rs. 21,545 crores during FY 21-22 to Rs. 24,670 crores during FY 22-23. In addition, during the same timeframe, the net profit magnified by 106 percent from Rs. 2.182 crores to Rs. 4,507 crores.
Due to consistent operating revenue and profits on a YoY basis, the profitability metrics of the company improved with the return on equity (RoE) increasing from 11.93 percent during FY 21-22 to 21.36 percent in FY 22-23, and, the return on capital employed (RoCE) zoomed from 14.59 percent to 26.22 percent during the same timeframe. Furthermore, the net profit margin increased from 10.13 percent during FY21-22 to 18.27 percent during FY22-23.
Biocon Ltd
Biocon, one of the leading biotechnology companies, received up to Rs. 250 crores in financial incentives under the PLI scheme over the next six years. The incentives are linked to investments in manufacturing infrastructure in India and corresponding incremental sales.
Looking at the financial statement, the company’s revenue increased by around 37 percent from Rs. 8,184 crores during FY 21-22 to Rs. 11,174 crores during FY 22-23. On a contrasting note, during the same timeframe, the net profit declined by 16 percent from Rs. 772 crores to Rs. 643 crores.
Due to increasing expenditure, the profitability metrics of the company declined with the return on equity (RoE) decreasing from 9.83 percent during FY 21-22 to 4.98 percent in FY 22-23, and, the return on capital employed (RoCE) showed a downward movement from 8.3 percent to 5.37 percent during the same timeframe. Furthermore, the net profit margin decreased from 9.4 percent during FY 21-22 to 5.7 percent during FY 22-23.
IT Hardware Components sector
On November 18, 2023, the Indian government declared that 27 manufacturers received approval under Scheme 2.0 for IT Hardware with investments worth Rs 3,000 crore by companies. PLI 2.0 program’s six-year duration allows manufacturers more time to benefit from the incentives. Moreover, this will result in an additional 3.5 lakh crore worth of production, as well as the creation of 50,000 direct jobs and 1.5 lakh indirect jobs.
The scheme aims to bolster the manufacturing of laptops, tablets, personal computers, servers, and Ultra Small Form Factor (USFF) devices.
Stocks from the IT Hardware sector that can benefit from the PLI scheme:
Dixon Technologies (India) Ltd
Dixon Technologies was awarded a contract by global tech giant Lenovo under the revised PLI scheme, through its subsidiary, Padget Electronics, as the chosen manufacturing partner for Lenovo’s IT hardware products, specifically for laptops and notebooks. The PLI scheme offers incentives of up to 5 percent on incremental sales, and Dixon Technologies has been one of the leading domestic IT companies to benefit from the scheme.
Looking at the financial statement, the company’s revenue increased by 14 percent from Rs. 10,697 crores during FY 21-22 to Rs. 12,192 crores during FY 22-23. In addition, during the same timeframe, the net profit zoomed by 34 percent from Rs. 190 crores to Rs. 255 crores.
Due to consistent operating revenue and profits on a YoY basis, the profitability metrics of the company improved with the return on equity (RoE) increasing from 22.2 percent during FY 21-22 to 22.63 percent in FY 22-23, and, the return on capital employed (RoCE) zoomed from 25.9 percent to 27.98 percent during the same timeframe. Furthermore, the net profit margin increased from 1.78 percent during FY 21-22 to 2.09 percent during FY 22-23.
Netweb Technologies India Ltd
Netweb Technologies India Ltd was selected under the PLI scheme for IT hardware manufacturing in India. The company has been approved for the PLI scheme, and its performance was the main highlight. Netweb Technologies has achieved double the target revenue in the first year itself under the PLI scheme, indicating a strong performance and successful utilisation of the incentives.
Looking at the financial statement, the company’s revenue increased by 80 percent from Rs. 247 crores during FY 21-22 to Rs. 445 crores during FY 22-23. In addition, during the same timeframe, the net profit magnified by around 113 percent from Rs. 22 crores to Rs. 47 crores.
Due to consistent operating revenue and profits on a YoY basis, the profitability metrics of the company improved with the return on equity (RoE) increasing from 67.85 percent during FY 21-22 to 69.17 percent in FY 22-23, and, the return on capital employed (RoCE) zoomed from 52.57 percent to 66.37 percent during the same timeframe. Furthermore, the net profit margin increased from 9.09 percent during FY 21-22 to 10.55 percent during FY 22-23.
Drone and Drone Components sector
The Indian government has disbursed around Rs. 30 crores during the fiscal year 2022-23 under the Production Linked Incentive (PLI) scheme for drones and drone components. The PLI scheme was notified on September 30, 2021, with a total financial outlay of Rs. 120 crore spread over three financial years.
Stocks from the Drone and Drone Components sector that can benefit from the PLI scheme
Paras Defence and Space Technologies Ltd
Paras Aerospace Private Limited, a subsidiary of Paras Defence and Space Technologies Limited was shortlisted for the Production Linked Incentive (PLI) scheme for drones. The Ministry of Civil Aviation has disbursed around Rs. 30 crores to the beneficiaries during the fiscal year 2022-23 under the PLI Scheme for drones and drone Components. This development has led to a positive impact on the stock of Paras Defence and Space Technologies Limited.
Looking at the financial statement, the company’s revenue increased by around 19 percent from Rs. 180 crores during FY 21-22 to Rs. 214 crores during FY 22-23. In addition, during the same timeframe, the net profit zoomed by 33 percent from Rs. 27 crores to Rs. 36 crores.
Due to increasing expenditure, the profitability metrics of the company declined with the return on equity (RoE) decreasing marginally from 10.81 percent during FY21-22 to 10.16 percent in FY 22-23, and, on the other hand, the return on capital employed (RoCE) showed a positive movement from 14.15 percent to 14.49 percent during the same timeframe. Furthermore, the net profit margin increased from 14.83 percent during FY 21-22 to 16.16 percent during FY 22-23.
Idea Forge Technology Ltd
IdeaForge received incentives under the PLI Scheme for FY 2023, which is spread over three financial years starting from FY 2021-22. The Ministry of Civil Aviation disbursed an amount of approximately Rs. 30 crores to IdeaForge Technology Limited as part of the PLI Scheme.
Looking at the financial statement, the company’s revenue increased by 16 percent from Rs. 159 crores during FY 21-22 to Rs. 186 crores during FY 22-23. On a contrasting note, during the same timeframe, the net profit decreased by 27 percent from Rs. 44 crores to Rs. 32 crores.
Due to increasing expenditure, the profitability metrics of the company declined with the return on equity (RoE) decreasing from 44.04 percent during FY 21-22 to 14.44 percent in FY 22-23, and, the return on capital employed (RoCE) showed a downward movement from 49.61 percent to 16.06 percent during the same timeframe. Furthermore, the net profit margin decreased from 27.6 percent during FY 21-22 to 17.2 percent during FY 22-23.
Railway sector
The Indian Railways is planning to introduce a Production-Linked Incentive (PLI) scheme to boost the local manufacturing of train components. The scheme aims to incentivize the establishment of new manufacturing units or the expansion of existing ones to produce coach and engine parts that are currently imported. The expected budget for this scheme is around Rs 800 to 1,200 crores spread over three years.
Stocks from the Railway sector that can benefit from the PLI scheme:
Texmaco Rail & Engineering Ltd
Texmaco Rail & Engineering Limited is expected to benefit from the Production-Linked Incentive (PLI) scheme for the railway sector in India. The PLI program will incentivize the setting up of new manufacturing units or the expansion of existing ones to supply coach and engine parts that are currently imported.
Coming onto the company’s financial statements, the revenue increased by around 43 percent from Rs. 1,814 crores in FY 21-22 to Rs. 2,600 crores during FY 22-23. In addition, during the same period, the net profit increased by 11 percent from Rs. 18 crores to Rs. 20 crores.
Due to increasing expenditure, the profitability metrics of the company declined with the return on equity (RoE) decreasing from 1 percent during FY 21-22 to 0.86 percent in FY 22-23, and, the return on capital employed (RoCE) showed a downward movement from 6.39 percent to 6.24 percent during the same timeframe. Furthermore, the net profit margin decreased from 0.67 percent during FY 21-22 to 0.44 percent during FY 22-23.
Titagarh Rail Systems Ltd
Titagarh Rail Systems (Titagarh Wagons) is expected to benefit from the Production-Linked Incentive (PLI) scheme for the railway sector in India. The company’s strong performance and impressive order book indicate its potential to benefit from the PLI scheme’s focus on boosting local manufacturing of train components.
Coming onto the company’s financial statements, the revenue magnified by around 89 percent from Rs. 1,468 crores in FY 21-22 to Rs. 2,780 crores during FY 22-23. In addition, during the same period, the net profit transformed from a net loss of 1 crore to a net profit of Rs. 126 crores.
Due to consistent operating revenue and profits on a YoY basis, the profitability metrics of the company improved with the return on equity (RoE) increasing from 9.26 percent during FY 21-22 to 14.91 percent in FY 22-23, and, the return on capital employed (RoCE) zoomed from 9.69 percent to 18.58 percent during the same timeframe. On a contrasting note, the net profit margin decreased from 5.3 percent during FY 21-22 to 4.84 percent during FY 22-23.
In Conclusion
To conclude, The Production Linked Incentive (PLI) Scheme is being implemented in different sectors in the hopes of achieving economies of scale that will make domestic manufacturing competitive, as well as benefits such as job creation, export capabilities and decrease the dependence on imported items. Despite some challenges, the scheme is seen as a significant step towards realising India’s vision of becoming self-reliant and increasing its manufacturing capacity and export potential.
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Written By Vaibhav
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