Nomura expects select automakers and auto component manufacturers to benefit from the government’s 1.46 lakh-crore ($ 20 billion) incentive program to establish manufacturing in India.
Bajaj Auto Ltd., TVS Motor Company Ltd. and Ashok Leyland Ltd. among the original equipment manufacturers and Balkrishna Industries Ltd., Bharat Forge Ltd., Sundaram Clayton Ltd., Wabco India Ltd. and Ramkrishna Forgings Ltd. in auto parts are the potential beneficiaries of the performance-related incentive scheme, the broker said in a report.
The Indian government announced on November 11 its plan to offer incentives to 10 sectors, including automakers, solar panels and specialty steels for a period of five years, according to a statement. Textile units, food processing plants, and specialty pharmaceutical manufacturers are also eligible. The largest amount of Rs 57,042 crore was allocated to provide incentives to the auto and auto components industries.
“The scheme focuses on making Indian companies competitive globally by boosting exports,” Nomura analysts Kapil Singh and Siddharth Bera said in the note. “The PLI scheme is likely to provide an annual benefit of nearly 2% of industry revenue on average.”
To be sure, the brokerage has assumed that the benefits of the Merchant Export from India Scheme program (2% of export earnings) continue into fiscal year 22.
Nomura anticipates that globally competitive Indian OEMs will gain market share in segments such as two-wheelers, forgings and tires. “The impact may be somewhat less in the case of passenger cars, as key markets, which are developed markets, have excess capacity at the moment,” the note says.
The brokerage also sees additional room for export growth in markets such as Africa, the Middle East and South Asia. “Given that industry utilization is around 56% for PV, 36% for MHCV, and 70% for two-wheelers in fiscal 2020, any higher target for new capex it can be harmful, “said the note.
The cabinet has also approved incentives worth Rs 18,100 crore for investments in advanced chemistry cell batteries. Nomura hopes that companies like Exide Industries Ltd. and Tata Chemicals Ltd. will benefit from this. “The success of this scheme, however, will depend on increased demand and government incentives for electric vehicles (electric vehicles),” says the note.
Nomura expects the Indian auto industry to recover from the devastating effects of the Covid-19 pandemic and see stronger growth in fiscal year 22. But the passenger vehicle segment may reach 2018-19 levels only in 2023- 24, he said.
