Registration of manufacturing companies has reached its highest level in the last seven years and the share of manufacturing companies in total registrations is also at the highest level for the last decade, according to the Emkay Investment report.
Representative image. Wikimedia Commons
Mumbai: The Production Linked Incentives (PLI) scheme, which aims to boost manufacturing in key areas by offering nearly Rs 2.4 lakh crore in incentives over the next five years, can add 4% to GDP per year. year in terms of additional income, according to a report.
So far, the program has received maximum response from the electronics, automotive components and pharmaceutical industries, according to Emkay Investment Managers.
The PLI program has the potential to add almost 4% to GDP per year in additional revenue if fully realized, according to the report released on Tuesday.
Manufacturing companies are adding capacity due to robust returns, as evidenced by the number of new registered manufacturing companies.
Registration of manufacturing businesses has reached its highest level on record in the past seven years and the share of manufacturing businesses in total registrations is also at the highest level for the past decade.
In addition, the number of environmental clearances requested and granted was the highest ever in FY22, 10 times that of FY15, the report says and attributes the same to structural changes unveiled during of the 2018-21 period, which are reminiscent of the many such things that have happened before. to the 2003-06 boom cycle.
The report says domestic manufacturing has been hit due to demonetization, poorly deployed GST and the pandemic, in addition to missing consumer demand. As a result, manufacturing companies reported dismal RoCE (return on capital employed) through fiscal 2018.
Since then, cash ROCE has improved to almost 20%, driven by tighter working capital cycles and cash return on capital employed was the highest in FY22.
The report goes on to add that the current difference between cash ROCE and comparable investments is one of the highest and that the allure of cash returns coupled with better capacity utilization has put manufacturers at the forefront of the stage.
On the demand side, the report notes that the consumer has been lacking in action since the ticket ban which was further weakened by the lopsided GST implementation and then the pandemic. All these have also crimped jobs by the millions.
However, GDP per capita growth accelerated in FY22 and GDP per capita was higher than in FY20 and Discretionary Income is expected to increase starting in FY20.
The report also attributes the success of the LIP program to the China+1 strategy. Since the pandemic that originated there, China has been the target of many Western companies and governments.
The global factory is again facing a major setback after recent shutdowns in many Chinese cities, which further aggravated supply chain as well as manufacturing disruptions. In addition to this, many developed countries have imposed anti-dumping duties on many Chinese products.
Another favorable factor is the depreciation of the Rupee against the Chinese Yuan, making India more competitive on the manufacturing front, and the main beneficiaries of these developments are automotive and automotive components, textiles, chemicals and capital goods, according to Vikaas M Sachdeva, CEO. Emkay Investment Managers, which is the portfolio management services arm of brokerage firm Emkay Global.