Nomura expects select auto and auto components makers to benefit from the government’s Rs 1.46-lakh-crore ($20 billion) incentive programme to set up manufacturing in India.

Bajaj Auto Ltd., TVS Motor Company Ltd. and Ashok Leyland Ltd. among original equipment makers and Balkrishna Industries Ltd., Bharat Forge Ltd., Sundaram Clayton Ltd., Wabco India Ltd. and Ramkrishna Forgings Ltd. in auto parts are potential beneficiaries of the performance-linked incentive scheme, the brokerage said in a report.

The Indian government on Nov. 11 announced its plan to offer incentives to 10 sectors, including automobile, solar panel and specialty-steel makers over a five-year period, according to a statement. Textile units, food processing plants and specialized pharmaceutical product makers are also eligible. The highest amount of Rs 57,042 crore was allocated to provide incentives to the automobile and auto components industries.

“The scheme focusses on making Indian companies globally competitive by driving exports,” Nomura analysts Kapil Singh and Siddharth Bera said in the note. “The PLI scheme is likely to give an annual benefit as nearly 2% of industry revenue on average.”

To be sure, the brokerage has assumed that the benefits under the Merchant Export from India Scheme (2% of export revenue) continue in FY22.

Nomura anticipates globally competitive Indian OEMs to gain market share in segments such as two-wheelers, forgings and tyres. “The impact may be somewhat lower in the case of passenger vehicles as the key markets, which are developed markets, have the excess capacity right now,” the note said.

The brokerage also sees a further room for growth of exports in markets such as Africa, the Middle East and South Asia. “Given that the industry utilisation is around 56% for PVs, 36% for MHCVs and 70% for two-wheelers in FY20, any higher targets for new capex can be detrimental,” the note said.

The cabinet has also approved incentives worth Rs 18,100 crore for investments in advanced chemistry cell batteries. Nomura expects companies like Exide Industries Ltd. and Tata Chemicals Ltd. to benefit from this. “The success of this scheme, however, will depend on demand pick-up and government incentives on EVs (electric vehicles),” the note said.

Nomura expects the Indian auto industry to recover from the devastating effects of the Covid-19 pandemic and see stronger growth in FY22. But the passenger vehicle segment may reach the 2018-19 levels only in 2023-24, it said.



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