Covid-19 pandemic reordered the world view. Companies the world over have increasingly started to think of new supply chains to reduce dependence on China. This perception can certainly help India to present itself as a viable manufacturing destination. Increasing the share of the young working-class, foreign direct investment, and government support should push manufacturing in the fast lane ahead. Prime Minister's thrust on manufacturing is envisaged through the 'Make in India' and 'Atmanirbhar Bharat' programs. India's appliances and consumer electronic market is slated to grow to $21.2 billion by 2025.
In May 2021, the Government of India gave its consent to the Production-Linked Incentive (or PLI) scheme of around $2.5 billion to produce advanced chemical cell batteries. This move is expected to drive manufacturing growth further. Although the second covid-19 wave dampened the Index of Industrial Production's (manufacturing) spirit in April-May 2021, it is likely to accelerate once vaccinations reach masses and unlock themes gain momentum. We have picked up three stocks in the manufacturing space, which are expected to yield good returns over the next few months.
Schaeffler India Ltd (NS:SCHE)
Founded in 1962, Schaeffler India is a ball and roller bearing manufacturing company. The company manufactures high-precision components and systems for drive train and chassis applications. It also manufactures rolling and plain bearing solutions for a wide range of industrial applications. The company's top-line growth depends a lot on the core sector's performance. Looking at crucial core sector stats, we realize that the year-to-date production of cement, steel, coal, and electricity has been higher in 2021.
The average monthly production of all segments of the automotive output is witnessing a sharp rise this year compared with 2020. It should augur well for Schaeffler India's revenue growth. The company saw a substantial 55% rise in its most prominent business vertical of automotive technologies in Q4FY2021. It was driven by a rebound in the passenger vehicle business and the robust performance of light commercial vehicles. Buoyed by solid top-line growth, Schaeffler India increased its planned capital expenditure by 20% to Rs 1,200 crore over the next three years. The company intends to set up additional capacities at its four plants in India to increase business in domestic and export markets. The Government of India's emphasis on renewable energy and modernization of the Indian railway system should drive the company's business growth in the future. Schaeffler has successfully curtailed the increased input cost while maintaining margins. It is noteworthy that it reported a massive 78% jump in its net profit in Q4FY2021 on a year-on-year basis.
SKF India Ltd (NS:SKFB)
Owned by AB SKFGermany, SKF India's operations in the country date back to the year 1923. The company is a worldwide supplier of bearings seals and mechatronics lubrication systems. It also provides technical support, maintenance and reliability services, engineering consulting & training services in India. The industrial sector accounts for 55%, and the automotive business accounts for 45% of SKF India's total trade. The $7.5 billion production-linked subsidy scheme to boost exports and vehicle scrappage policy is expected to benefit the automobile industry. Rising fuel prices coupled with government support and investment in electric vehicle-related infrastructure should push forward EV sales.
India's push for public transportation expansion through metro trains and suburban train networks will drive SKF India's top-line. Import substitution, new export markets, and the Government's increased spending on infrastructure projects should fuel SKF's revenue growth in the coming quarters. The company's revenue jumped ~39% year-on-year in Q4FY2021 to Rs 847.5 crore from Rs 610.2 crore. Its profit before tax also grew by a robust 51% during the same period. The stock returned 63.3% in a year and 43% in six months.
Timken India Ltd (NS:TIMK)
Timken India was set up in 1987 as a joint venture between the then Tata Iron and Steel Company and The Timken Company. Timken India is a world leader in manufacturing bearings. The company manufactures roller bearings components and accessories for the railway industry and automobile sector.
The global machine tool-bearing market is expected to grow at a CAGR of 3% during 2021-2026. It should aid Timken's revenue growth ahead. Apart from it, railway infrastructure up-gradation, pick-up of industry activity coupled with rising commercial vehicle production should drive Timken's top-line growth going forward. The company's shares returned ~43% in a year and traded at a 10% discount to its 52-week high of Rs 1,667.