In December 2021, the Indian government gave a huge boost to the production of semiconductors and displays. It allocated more than Rs 76,000 crore to the sector in the PLI scheme.
The goal here is to increase the production of semiconductors and displays to meet domestic demand. This demand is now met by imports.
Major companies, including the Tata group and the Vedanta group, have already made plans to set up fantastic units.
The Vedanta group has planned investments of $15 billion over the next 5-10 years to make displays and semiconductor chips in India.
International companies have also shown a lot of interest. And why wouldn’t they? After all, display fab units receive tax support up to 50% of the project costs.
When the PLI scheme was announced, we were quick to identify the huge opportunity here. We wrote to you about the stocks in the semiconductor space.
In this article, we’ll look at two display industry stocks that should be on your watchlist in 2022.
#1 Dixon Technologies
Dixon Technologies is one of the largest design and solutions companies in India. It is engaged in the production of consumer electronics.
The company’s product portfolio includes most of the consumer electronics we use every day. LED TVs, washing machines, LED and tube lights, cell phones, CCTV – Dixon all has its footprint.
It is the largest LED TV manufacturer in India.
It produces TVs for global and domestic brands such as Samsung, Panasonic, Xiaomi, TCL, OnePlus and many more. The largest part of the company’s turnover (more than 45%) comes from the LED TV segment.
Dixon Technologies is a stock that should be on your watchlist.
The production of displays is very complex and technology intensive. The problems are huge capital investments, high risks and rapid technological change.
Despite being in a capital-intensive industry, Dixon has maintained a footprint, across verticals, with little debt on the books.
Over the years, the company has expanded its production capacity. It has also acquired good cost control.
Dixon is now one of the largest and most cost-effective electronics companies in India.
The focus on new vertical markets has supported growth. About two years ago, it ventured into the production of set-top boxes and medical electronics.
There is a growing demand for displays in India for the production of LEDs, desktops, smartphones, etc. Students now need laptops to attend lectures at home in a post-pandemic world.
With increased demand, global manufacturers are joining local manufacturers such as Dixon, who have a track record of execution. Taiwanese PC maker Acer has partnered with Dixon to make laptops in India. To this end, a production unit was expanded last year to produce up to 500,000 laptops annually.
This just goes to show that the government initiatives ‘Atmanirbhar Bharat’ and ‘Make in India’ are getting off the ground. The PLI is like an extra boost.
Dixon’s subsidiary Padget Technologies has already received government approval under the PLI scheme for cell phone manufacturing.
Domestic mobile phone production will grow in the next 5-6 years and Dixon will be one of the main beneficiaries.
In a recent interview, the company’s MD said that Dixon has a capital expenditure (capex) of about Rs 450 crore for fiscal 2022.
He also said that the company’s revenue is expected to rise sharply from Rs 6,400 crore to Rs 11,000-11,500 crore in fiscal 2022.
Since its listing in September 2017, the share has risen by no less than 645%.
Dixon’s stock has been under pressure lately due to the shortage in the global supply chain of semiconductors, a key component of electronics products.
The decline can also be attributed to a weak set of results. Last month, Dixon posted 9% consecutive sales growth, while net profit fell 25%.
For more information, check out Dixon Technologies’ latest quarterly results.
#2 PG Electroplast
Like Dixon, PG Electroplast is engaged in the production of LED TVs, mobile components, washing machines, air conditioners and other consumer electronic devices.
It specializes in plastic molding components and has an established market position. The group is one of the leading contract manufacturers/sellers for air conditioners, washing machines and other plastic molded parts for white goods.
It receives consistent orders from popular brands including Voltas, LG India, Whirlpool, Reliance Digital, Onida, Godrej and Acer.
While the company gets less than 10% of its revenue from the electronics segment, its healthy financial situation makes it worth putting it on your watchlist.
In 1995, PG Electroplast began manufacturing complete TV sets at its Noida plant. However, shortly after entering this space, the company faced huge competition from South Korean and Japanese TV brands in India. Even big brands like Onida and Videocon couldn’t survive.
After a long hiatus, it has re-entered the television production sector, buoyed by government support for domestic companies under ‘Atmanirbhar Bharat’.
PG Electroplast is one of 52 companies that have applied for the PLI scheme for white goods including components for ACs and LEDs.
Last year in the July-September 2021 quarter, the company began manufacturing/assembling LED TVs for two of its customers at its Greater Noida plant. It has ties to a Chinese company for technical know-how and LED TV design. The facility has an annual installed capacity of 500,000 television sets with screen sizes up to 70 inches.
The company’s management believes that production will increase from the January-March 2022 quarter.
In 2021, the company saw a sharp spike in its net profit as all of its vertical markets performed well. 2021 was also the year in which PG posted its highest revenue, operating profit and net profit ever. This is despite quarterly sales losses in the first two quarters due to the lockdown and its effects.
The only major concern is the company’s debt, which has increased over the years.
Those who invested in the company a year ago would be sitting on solid profits of 200%.
If you want to know more about the company, view the financial factsheet of PG Electroplast.
The increased focus of the government on being self-reliant has created enormous opportunities for both large and small players. Investments from companies seeking to take advantage of the scheme may begin shortly. The government expects investments worth Rs 1.7 lakh crore.
Plans to report the settlement in a few weeks, rapid approvals and hand-holding companies are already underway as they set up manufacturing units in India.
The benefits of the PLI scheme for companies in the semiconductor and display industries are not limited to them. It also includes various electronic segments such as smartphones, LED TVs, laptops, air conditioners, etc.
All in all, it would be beneficial for the entire electronics space.
Disclaimer: This article is for informational purposes only. It is not a stock recommendation and should not be treated as such.
(This article is from Equitymaster.com)
(This story was not edited by DailyExpertNews staff and was generated automatically from a syndicated feed.)