These auto stocks can benefit as govt approves PLI scheme

The Indian government has approved a production-linked incentive (PLI) scheme for the automobile sector to help companies ramp up local manufacturing of cars, bikes and electric vehicles.

The government has fixed an outlay of almost Rs 26,000 crore for the scheme, which will be effective from 2022-23 for five years. The base year for eligibility criteria would be 2019-20.

To benefit from the scheme, automakers should have annual revenue of at least Rs 10,000 crore and Rs 3,000 crore investment in fixed assets. Auto-parts makers should have clocked revenue of at least Rs 500 crore and Rs 150 crore investment in fixed assets.

The government estimates that the PLI Scheme will lead to fresh investment of Rs 42,500 crore and incremental production of Rs 2.3 lakh crore over a period of five years. This will help create 7.5 lakh jobs.

Shares of auto and auto component companies climbed on Thursday after Wednesday’s decision. Bosch was the biggest gainer, rising 5% on the BSE. Two-wheeler makers Hero MotoCorp and Bajaj Auto as well as component maker Tube Investments of India rose almost 2%, before paring the gains. The benchmark BSE Sensex was up 0.4%.

However, top automakers Maruti Suzuki, Tata Motors and Mahindra & Mahindra were trading lower, likely because the scheme for vehicle manufacturers is only applicable on battery electric vehicles and hydrogen fuel cell vehicles.

What analysts say about PLI scheme

Motilal Oswal Financial Services says that the incentives offered under the scheme are attractive and that the eligibility criteria on both revenue and expected investment are reasonable.

It noted that the incentives are lower than the original plan of Rs 57,000 crore but said the step will help improve competitiveness in the segment.

Motilal Oswal picks two-wheeler makers Bajaj Auto and TVS Motor as well as car and truck maker Tata Motors among the likely beneficiaries.

Antique Broking says the scheme will promote cleaner technologies as it gives sops to companies that make EVs and fuel cell vehicles.

On the flip side, this means traditional automakers will have to transition quicker from internal combustion engine-powered vehicles to EVs. This will require heavy investments, and is a negative for such companies. The brokerage houses feels Tata Motors and auto component firms like Bosch and Sona Comstar will benefit.

Kotak Securities and Swastika Investment both think Bosch and other auto-parts companies like Minda Industries, Motherson Sumi, Jamna Auto, Endurance Tech, Varroc Engineering and Sona Comstar will benefit from the scheme.

ICICI Securities thinks that Mahindra & Mahindra—India’s biggest maker of sport-utility vehicles—can benefit as well.