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pg 4. From MAKE-IN-INDIA to MAKE-FOR-THE-WORLD

pg 95. Indian Economy: Trend Indicators

pg 60, 62, 78, 90. Interviews: Mr Krishan Sachdev, Mr Nipun Singhal, Mr Saurabh Gupta, Mr Maulesh Chhaya

pg 97. PhillipCapital Coverage Universe

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MANAGING DIRECTOR & CEO Vineet Bhatnagar

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4. COVER STORY

From MAKE-IN-INDIA to MAKE-FOR-THE-WORLDBy Deepak Agarwal, Vineet Shanker &

Keshav Bharadia

78. INTERVIEW

Mr Saurabh Gupta, CFO, Dixon Technologies

62. INTERVIEW

Mr Nipun Singhal, MD and CEO, Amstrad (OVOT Pvt. Ltd

60. INTERVIEW

Mr Krishan Sachdev, Chairman, Carrier Midea India

90. INTERVIEW

Mr Maulesh Chhaya, Industry Expert, Mentor

CONTENTSLetter from the MD I want to express my sincere gratitude to all the frontline COVID-19

warriors who continue to manage and fight the crisis, especially in this

second wave. I am also proud to see how our country has successfully

rolled out its vaccination strategy and hope that most of our people

are vaccinated by the end of June, bringing an end to this dreaded

second wave. Although the vaccination drive is in full swing, the threat

is very real, so we need to take ample care of ourselves and our fellow

human beings. There is no doubt that fighting and overcoming the

pandemic is going to take collective effort.

The pandemic has caused an economic fallout across sectors.

However, the consumer electronics industry has shown its resilience

and has performed better than anticipated. As people were working

from home, demand for products that offer convenience and provide

a better life (such as washing machines, dryers, air conditioners, TVs,

and other home appliances) increased significantly. Traditionally, the

Indian electronics industry, especially consumer electronics, has been

largely dependent on imports. However, our government’s strong

emphasis is on becoming self-reliant ‘Atmanirbhar’ and promoting

domestic manufacturing (by bringing in schemes like Production

Linked Incentives (PLI) and imposing import restrictions) – which has

started leading to reduction in imports.

The pandemic has exposed the frailties of the supply chain and the

importance of de-risking it at a global scale; the world is keen to adopt

a China +1 strategy in preparation of more challenging times. This, our

midcaps team believes, can lead to an unprecedented opportunity

for the Indian consumer electronics industry, especially for Electronic

Manufacturing Services (EMS). Deepak Agarwal, Vineet Shanker, and

Keshav Bharadia, our midcaps team members, dug deep into the

electronics manufacturing industry from the perspective of its current

very-low global market share, and how India is likely to be a major

electronics manufacturing hub in the future.

In addition to this, the team interviewed Mr Krishan Sachdev, Chairman,

Carrier Midea India, Mr Saurabh Gupta, CFO, Dixon Technologies, Mr

Nipun Singhal, MD & CEO, Amstrad (OVOT Pvt. Ltd) and some other

industry leaders and experts – to understand how well electronics

manufacturing is positioned to capture domestic demand and increase

value addition, and to gauge the global exports opportunity.

Cheers and Best Wishes, Vineet Bhatnagar

95. Indian Economy: Trend Indicators

97. PhillipCapital Coverage Universe Valuation Summary

INTERVIEWS


COVER STORY

BY DEEPAK AGARWAL, VINEET SHANKER, KESHAV BHARADIA

COVER STORY

BY DEEPAK AGARWAL, VINEET SHANKER, KESHAV BHARADIA

India will see an increase in domestic value-addition across product segments (currently quite below the global average). With the setting up of a

components ecosystem, and scaling up of large-scale electronics manufacturing capabilities in the country, this industry should see tremendous growth.

Manufacturing is the next big theme

From MAKE-IN-INDIA to MAKE-FOR-THE-WORLD


The Indian electronics industry is in a sweet spot because of the government’s initiatives such as Make-in-India, Aatmanirbhar Bharat, and the de-risking of the global supply chain coupled with an increased adoption of the China+1 strategy worldwide. India has essentially been a net importer of electronics goods and components in the past, due to drawbacks and challenges in local manufacturing. However, this is changing rapidly and experts believe that various government incentives such as PLI, EMC 2.0, SPECS, NPE, along with reformed labour laws, will prove conducive to manufacturing in India for the world.

As a result, There is likely to be huge capex over the next 3-5 years in the electronics industry. India has already seen an influx of investments coming in to scale up manufacturing, from both domestic and international companies.

The global supply chain disruption arising out of China last year has increased awareness amongst companies worldwide about the consequences of doing most of their manufacturing in China. This has led to companies relocating to other countries. India has the lowest penetration rates across consumer durables, a large domestic market, supportive government policies, lower tax rates and the lowest wages, making it a lucrative destination for many global giants and domestic companies.

India will see an increase in domestic value-addition across product segments (currently quite below the global average). With the setting up of a components ecosystem, and scaling up of large-scale electronics manufacturing capabilities in the country, this industry should see tremendous growth.

pg. 6 INDIA’S ELECTRONICS INDUSTRY

Eyeing a bigger share of the global supply chain

_______________________________________ pg. 17 GOVERNMENT’S INCENTIVES FOR INDIA INC

Government is the catalyst that is driving growth

_______________________________________pg. 31 CHINA + 1 STRATEGY

De-risking the global supply chain

_______________________________________ pg. 46 PRODUCTS

Lower penetration and a large domestic market = huge growth

_______________________________________ pg. 91 OUTLOOK

Make in India! But how soon will India make for the world?

_______________________________________


INDIA’S ELECTRONICS INDUSTRY

Eyeing a bigger share of the global supply chain Contract manufacturers will support growth

Electronics: The fastest growing industry in the worldExperts believe that the electronics industry will surpass the

US$ 7.3tn mark by 2025. In fact, the Indian market is likely to

be second only to China’s, followed by Vietnam, Thailand,

and Indonesia. India’s electronics industry has undergone

drastic changes in the last 20 years, mostly in products, the

retail environment, and in terms of an evolving administrative

landscape. Of late, innovation and technology changes have

been rising, because of a shift in consumer behaviour and

changing business requirements.

These five factors will push the industry’s growth to the next

level:

1. Low penetration of products; much lower than the global

average.

2. Positive GDP growth outlook.

3. Huge push from the government to become self-reliant

(reduce import dependency) and to increase exports by

introducing various schemes (EMS is a big part of this).

4. Rising discretionary incomes.

5. Evolving of physical and social infrastructure, better

logistics, and an expanding e-commerce industry.

India’s electronics market size

• India’s electronics hardware production has increased

from Rs 1.9tn in FY15 to touch an estimated Rs 5.46tn in

FY20. This includes production of consumer electronics,

electronics components, computers, strategic and

industrial electronics (Source: MEITY Annual Report

FY20).

• The Indian consumer electronics and consumer durables

market is likely to become the fifth-largest globally by

2025.

• Despite disruption due to covid, smartphone shipments

saw a decline of only 1.7% in CY20. The production worth

of mobile phones in India reached US$ 30bn in FY20

from US$ 3bn in FY15, which should only increase from

here. India is focussing on manufacturing and becoming a

global manufacturing hub.

• Under EMS, there is ESDM (Electronics System and

Design Manufacturing), which has two sub sections –

electronics systems and electronics design.

• In consumer durables, LCD/LED TVs grew more than two

times in terms of volumes – from 5.2mn units in FY15 to

12mn units in FY19.


Work-from home culture is driving growth in electronics

After the government lifted the lockdown in India, the

consumer durables sector saw healthy growth, led by a

strong surge in online sales across product categories.

Restrictions and paranoia caused a drastic shift in the

working style – which is now firmly work-from-home (WFH)

for many job profiles. Compared to metros, consumer

durables sales saw a sharper rise in non-metros due to lower

penetration of appliances, combined with lower intensity of

lockdowns, which resulted in many first-time buyers. Sales

of laptops and tablets saw a sharp uptick due to schooling

from home and WFH. TVs also saw robust sales, as majority

houses had only one TV and found the need for a spare

one, with more members spending most of their time at

home. The need for washing machines, air conditioners,

dishwashers, microwaves increased for the same reasons.

The fact that India’s nationwide penetration for consumer

durables is less than 10%, provides massive headroom for

growth. With an increasing shift towards work-from-home

and bans on imports of ACs with refrigerants and ban on LED

TV imports, domestic companies are set to gain. The uptrend

in growth of the consumer durables sector could continue,

with increase in GDP per capita as shown in the figure given

below, which could lead to higher consumption and higher

consumer spending.

India can use this moment to emerge as a leading electronics

and components manufacturer. COVID-19, along with the

anti-China sentiment is leading to a seismic shift in global

supply chains. Some of the factors that support India are as

follows:

• A post pandemic reality: There has been a change in

global supply chains due to the pandemic. Companies

have realised the drawbacks of being dependant on

only one nation (China) as a single source of supply,

as they faced disruptions to the flow of materials from

there. Trade tensions between the US and China have

added to diversification in supply chains. As multinational

companies look for alternate destinations to set up their

manufacturing bases, they view India as an attractive

option.

• Anti-China sentiment: The US-China trade and tariff

war and increasing anti-China sentiment offer India

an ideal base to leverage the strong push by the

Indian government for manufacturing and to attract

multinational companies looking to set up new bases and

to diversify their supply chains.

• Ease of doing business and policy support: India has

made significant progress in its ‘ease of doing business’

parameters in recent years. This, coupled with many

new government initiatives towards boosting domestic

manufacturing (PLI, SPECS. EMC (2.0), M-SIPS, NPE, PMP,

Make in India, Digital India and Start-up India) should

increase FDI inflows into electronics manufacturing.

Sales of laptops and tablets saw a sharp uptick due to schooling from home and WFH

Companies have realised the drawbacks of being dependant on only one nation (China) as a single source of supply, as they faced disruptions to the flow of materials from there

The government expects PLI schemes for mobile phone manufacturing, AC components, and LEDs to generate total revenues of around Rs 12tn

Trend showing an increase in GDP per capita over the years

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• PLI scheme for mobile manufacturing, AC, LED

lighting, laptops, tablets, etc.: The government

has cleared 16 proposals, both from domestic and

international companies, constituting an investment of Rs

110bn under the PLI scheme for mobile manufacturing

worth Rs 10.5tn over the next five years. In the PLI

scheme for AC components and LED lights, the

government has approved an outlay of Rs 62.4bn and

in the PLI for laptops, tablets, and for all-in-one PCs, it

has approved Rs 73.2bn. The government expects PLI

schemes for mobile phone manufacturing to bring in tax

revenues of around Rs 800bn over the next five years,

apart from making India a destination for manufacturing

electronic goods (exports hub) for global giants such as

Apple and Samsung. It expects GST revenues of around

Rs 720bn from Rs 4tn worth of domestically produced

mobile phones. It believes it can generate exports of c.Rs

6.5tn through the PLI scheme over the next five years.

Recent PLI is looking to create component ecosystem in

India.

• Electronics is at the heart of world trade: Electronics

will always remain an integral part of the global

manufacturing processes. India has given electronics and

component manufacturing special attention through its

progressive policies and regulatory frameworks.

• New labour codes: The Indian parliament has passed

four codes on wages, industrial relations, social security,

and occupational safety and health (OSH), which will

ultimately rationalize 44 central labour laws. The code on

wages was passed in 2019, while the three other codes

got clearance from both the Houses in 2020. These

codes are favourable for both employers and employees;

some of the provisions like 14 days of notice prior to

strikes remove the uncertainty in day-to-day operations,

and give some time to employers to come up with an

alternate plan of action, which was not there in previous

labour laws. Experts highlighted that with an increasing

share of contract-labour under the new labour code,

contract manufacturers can scale up manufacturing.


Structure of the industry

The Indian electronics industry consists of consumer

electronics, industrial electronics, electronic components,

LED products, strategic electronics, computer hardware, and

broadcasting electronics. Communication and broadcasting

devices along with consumer electronics constitute c.40%

of the revenues of the Indian electronics industry; industrial

electronics make up 20.5% and electrical components 22%.

In domestic electronics production, mobiles have seen highest 64% CAGR over FY15-20

Consumer electronics constitute 31% of the electronics industry

Communication and broadcasting devices along with consumer electronics constitute c.40% of the revenues of the Indian electronics industry

Source: meity.gov.in, PhillipCapital Estimates

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Focus is on self-reliance via ‘Atmanirbhar Bharat’Imports fuel the electronics demand in India; the country

imported c.40% of its electronic goods in FY20, but

this number is lower than 54% in FY15. The reduction

is mainly due to the government’s phased

plans of imposing duties on imported goods

and simultaneously promoting domestic

manufacturing of electronics by incentivizing

production. India exports c.16% of its total

electronics production. The Government

of India is focused on the development of

a component ecosystem in the country to

promote manufacturing, which will substantially

reduce imports and increase exports. Over the

next 2-3 years, we expect a sharp reduction in

mobile phones, TVs, ACs imports.

Why Atmanirbhar? Increasing trade deficit in a country

with a large work force, talent, and resources can negatively

impact the country’s overall economic growth. India’s trade

deficit in the electronics sector is the second largest after

crude oil. It increased from US$ 34bn in 2015-16 to touch

US$ 41bn in 2019-20. India has the highest dependency on

Chinese manufacturers for electronics

goods and its components – such as

compressors, PCBs (Printed Circuit

Boards) and open cells in manufacturing

of ACs and TVs. However, India and

China’s strained relationship (trade and

diplomatic) in FY20 cast a shadow on

domestic manufacturers, making the

need for a self-reliant India (Atmanirbhar

Bharat) inevitable. India is focusing on

its own manufacturing, starting with

assembling, and then manufacturing of critical components.

India has the highest dependency on Chinese manufacturers for electronics goods and its components – such as compressors, PCBs (Printed Circuit Boards) and open cells in manufacturing of ACs and TVs

Higher domestic value addition is not possible without contract manufacturers

India’s electronics’ trade deficit in FY20 touched US$ 41bn

India imports c.Rs 4tn electronics goods annually

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Due to the Atmanirbhar initiative, over next two years, imports of products like air conditioners, LED TVs, and mobile phones will significantly fall

Product Domestic growth % (last 5 year CAGR)

Current domestic value addition (%)

Domestic manufac-turing can increase

to %

Domestic Market size (in Rs bn)

Current India import %

Mobile 47% 12-15% 30-35% 3165 50-60%

TV 17% 12-15% 25-30% 694 70-80%

RAC 16% 25-30% 70-75% 112 34%

WM 15% 50%-70% 90% 104 15%

Ref 15% 50%-70% 90% 120 35%

LED Lighting 15% 70% 90% 201 22%

Other Small Appliances* 16% 70-90% 90% 100 20-30%

Domestic value addition to increase across product segments over the next 5-7 years

Source: PhillipCapital Estimates

• OEM (original equipment manufacturer): Produces parts and equipment that may be marketed and retailed by

another manufacturer. Could also focus on product innovation and development, and outsource manufacturing to

partners.

• ODM (original design manufacturer): Designs and manufactures a product that is subsequently rebranded and

retailed by other companies that do not carry out their own manufacturing.

• EMS (electronics manufacturing services): Contract electronics manufacturer that makes products for OEMs; could

also aid in design, software development, supply chain management, testing, distribution, and repairs. EMS is a

generally an accepted term for contract manufacturers in the electronics field.

How does the government plan to reduce trade deficit in electronics?

The government wants to increase domestic value addition in electronics

manufacturing. To develop a robust manufacturing base, it has started making

the following moves – providing fiscal incentives to set up local manufacturing

facilities, large-scale cluster development, world-class testing facilities,

and skilling ecosystems – to name a few. Higher domestic value addition is

not possible without contract manufacturers. This is because, for OEMs it

becomes difficult to scale or integrate production of its components. Contract

manufacturers offer skills beyond just manufacturing – in terms of design

and other value-added services. Thus, a big part of the domestic electronics

industry is likely to be in the form of Electronic Manufacturing Service (EMS) or

contract manufacturing.


Contract manufacturing is projected to grow at a rapid pace, outperforming the entire electronics industry

History of EMS (Electronics Manufacturing Services)

The shift in manufacturing – from in-house to outsourced

– began decades ago. Today, companies are extending

their outsourcing to almost every aspect of production,

from design manufacturing to final product assembly. They

have extended the array of outsourcing activities, beyond

just component manufacturing, to complete production

of a branded product. EMS players have become active

partners in product designing and development, including

extension of the companies they service. In fact, top EMS

executives say that the sustained growth of their companies

depends on the ability to extend their responsibilities to

running the complete supply chain for global players. At

present, domestic EMS companies play a key role in reducing

shipments into India.

However, it was not always like this. Initially, EMS providers

started providing services for PCBA (printed control board

assembly) and consignment work, where they did not own

any material and just executed simple assembly operations.

This industry saw substantial growth in the 1990s due to

downsizing by many OEMs in the economic recession early in

that decade. During the recession, companies were strapped

for capital and were hence loath to invest in new equipment.

However, cash-rich EMS providers were able to enhance

and increase their production capabilities. They continued

investments in latest technologies and expanded their

services within the industry. OEMs, starved of capital, started

focusing on becoming asset-light, which gave agility to their

business models, leading to high profitability and return on

capital employed.

Many OEMs soon realized that hiring contract manufacturers

for producing most of their components was viable, because

with their large client bases, EMS providers were able to

leverage the benefits of year-long full-volume productions

and provide cheaper services. As a result, even after the

economic recovery, global companies continued to shift

their business models towards more contract manufacturing,

instead of ramping up their in-house manufacturing

Contract manufacturing is projected to grow at a rapid pace,

outperforming the entire electronics industry. Companies

have now started focusing more on new, smaller, and online

brands. They focus more on marketing, and outsource

manufacturing to EMS companies. This is likely to benefit

OEM/ODM players of all sizes.

EMS companies are no longer just vendors, but assume full responsibility for the engineering, production, and distribution of products

EMS industry is becoming more difficult

Getting a pie of the rapidly growing contract manufacturing

industry is more difficult than it seems, as economies of

scale, purchasing power, and global logistics are making

the business an increasingly concentrated one. Here,

one must either be a big player or serve a niche market.

Historically, the preferred path in contract manufacturing

was to grow with a major global client, but today, the capital

investment required by an EMS provider is enormous. In

fact, the introduction of surface-mount technology in PCB

(printed control boards) assembly has increased the capital

expenditure. Short product life cycles and declining prices

have prompted contract manufacturers to launch their

own products across geographies and to indulge in a

broad range of services, not just manufacturing.

Electronics System Design and Manufacturing (ESDM)

Electronics hardware manufacturing is an integral part of

the government’s Make in India, Digital India, and Start Up

India initiatives. ESDM plays an imperative role, and has

high weightage, in the government’s vision of garnering US$

1tn economic value from the digital economy by 2025. The

demand for electronics products has been rising in recent

years, mainly due to the surge in the internet penetration

rate in India. Manufacturing has gained traction in this

segment, with increased production and product assembly

taking place across consumer electronics.


Outlook of ESDM in India

IBEF (Indian Brand Equity Foundation) predicts India’s

ESDM sector reaching US$ 220bn by 2025 expanding at a

16% CAGR between 2019 and 2025, fuelled by a pickup in

public and private investments, rising demand for electronic

products, and a strong policy framework in place. Currently

electronics manufacturing in India contributes to 1.7%

of the GDP, while in China, Taiwan, and South Korea,

the sector’s contribution is significantly large at 12-15%;

as India’s consumption increases, and the dependency on

India has been one of the largest consumers of electronics goods in the past decade

India will see an increase in domestic value-addition across product segments (currently quite below the global average). With the setting up of a components ecosystem, and scaling up of large-scale electronics manufacturing capabilities in the country, this industry should see tremendous growth.

India has just 2% market share in EMS globally; China has the largest share

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imports decreases, its electronics industry’s contribution to

GDP will also be in a similar range as these countries (over

the next 7-8 years). Industry watchers attribute the growth

in the domestic consumption of electronics mainly to rising

disposable incomes, an increasing middle-class population,

and a drop in prices of need-based electronics in the country.

The Indian electronics industry has the lowest contribution to GDP at 1.7% vs. 12.7% for China

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Name HQ Manufacturing locations Revenue (US $mn)

HonHai Precision (Foxconn) Taiwan China, India, Japan, Vietnam, Malaysia, US 1,78,600

Pegatron Taiwan China, Indonesia, US, Europe, India 45672

Wistron Taiwan US, Europe, China, Taiwan, India 29358

Jabil Inc US US, China, Malaysia, India, Europe 25282

Flex Singapore US, China, India, Malaysia, Indonesia 24210

Sanmina US China, Canada, Europe, India, Malaysia, Thailand, US 8234

BYD Electronics China China 7616

Celestica Canada Canada, US, China, Malaysia, Europe, Thailand 5888

Universal Scientific Industrial China China, Taiwan, Mexico, Poland 5343

New Kinpo Group Taiwan US, China, Thailand, Malaysia, Brazil, Mexico, Philippines 4598

Kaga Electronics Japan Japan 4123

Plexus Corp US US, China, Malaysia, UK 3164

Venture Corporations Singapore Singapore, US, China, Malaysia 2702

Benchmark Electronics US US, China, Malaysia, Netherlands, Romania 2268

SIIX Corp Japan Japan, China, Thailand, Indonesia 2052

Shenzhen Kaifa China China, Malaysia, Philippines 1899

Fabrinet Cayman Islands China, Thailand, Japan, US 1584

UMC Electronics Japan Japan, China, Vietnam, Thailand 1310

Integrated Micro Electronics Philippines Philippines, China, Europe, Japan US 1250

Kimball Electronics US US Thailand, China and Poland 1182

Top EMS companies of the world

Government measures to increase local ESDM

manufacturing

The Government of India has allowed 100% FDI in the

ESDM segment under the automatic route even for

Original equipment manufacturers (OEMs) and Integrated

Device Manufacturers (IDMs). PLI will also boost domestic

manufacturing.

Increasing localisation in supply chain and miniaturisation of electronic products have been the two main trends in Indian electronics market

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Domestic EMS market share in India

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*Note: we have taken only domestic contract manufacturing companies.


Product India Market Size

(in Rs bn)

Domestic Manufactur-

ing

Brands Own Manufactur-

ing

Out- sourcing

Domestic

Imports (A) (in Rs bn)

Current Value Addition

Expected Valuation

Addition to increase

Exports (in Rs bn)

Air conditioners 112 56 30-40% 60-70% 56 20-25% 70-75% 3

Refrigerators 120 78 70% 30% 42 50-70% 90% 12

Washing machines

104 88.4 60-70% 30-40% 15.6 50-70% 90% 4

LED TVs 694 138.8 10-15% 85-90% 555.2 12-15% 25-30% 11

Mobile phones 3165 2250 10% 90% 915 12-15% 30-35% 291

Lighting 201 157 50% 50% 44.22 70% 70% 4.2Note: Industry estimatesSource: Industry, PhillipCapital estimates

Domestic manufacturing will rise sharply as imports reduce and exports increase

List of contract manufacturing companies in India (mobile phones, air conditioner, washing machine, TVs, etc.)

Source: Industry, PhillipCapital Research


Major contract manufacturers companies in India Mobile phone and component manufacturing ecosystem on the Indian map. A large numbers of contract manufacturers are located in and around the national capital region


Many global companies (Wistron, Foxconn, etc.) have started coming to India. Domestic manufacturers have increased their capacity significantly and are focusing on contract manufacturing


Source: Company, PhillipCapital Research

GOVERNMENT’S INCENTIVES FOR INDIA INC

Government is the catalyst that is driving growthIt has implemented several policy measures to kick-start electronic manufacturing in India

List of GoI schemes, funds, and cluster programs over the years

Government’s push for domestic manufacturing

Electronics Development Fund (EDF)

The Government of India set

up EDF as a Fund of Fund

(FOF), through which it has

invested into several other

funds (also known as Daughter

Funds”). These daughter

funds then invest in companies

that have business around

electronics. EDF enables

creation of an ecosystem

for providing risk capital to

companies developing new

technologies in the areas of

electronics, nano-electronics,

and IT. This fund fosters

R&D and innovation in these

technology sectors. This was

one of the most important

strategies to enable creating an

electronics industry ecosystem

in India.


Name of the daugh-ter fund

Amount in-vested by EDF

(in Rs mn)

Total amount invested by the daughter fund

start-up/ companies (in Rs mn.)

No of investee start-ups/ Compa-nies of Daughter

fund

Portfolio Companies (Investee)

Endiya Seed Co-cre-ation fund

243.3 1158.8 12 Steradian Semi, AiCS Advance AI Compute, Cell Propulsion

KARSEMVEN Fund 131.1 441.5 10 Graphene, Prodigy Technoventions, SenseGiz, Pinaka, Greendzine, Remido, CNB Technologies, Aptener Mechatronics, Open Appliances, Bellatrix Aerospace and Bionic Yantra

YourNest India VC Fund II

117.1 434 14 Argoid, Koinearth, Uptime AI, Xpedize, Lightspeed Labs, Dozee, Mauna.ai, Miko, Cron AI, Practically, Lavelle Networks, Trezi, CredRight, Orbo

PI Venture Fund-1 70.1 872.3 10 Sigtuple, Ten3T Health (Cicer), Zenatix, Niramai, Customer Suc-cess Box, Locus, OweMe, True Lark, SwitchOn, Wysa, Agnikul, Pyxis

Unicorn India Venture Fund

128.6 494.8 17 Boxx.ai, ChitMonks, Clootrack, Fedo, Finin, Finsall, Fund Our-selves, GamerJi, Genrobotics, GrabonRent, Goldex, Inc42, inntot, iDefigo, Libryo, Moteefe, SmartCoin, supplyCompass, Sascan, Sequretek, Probus, Perfit 3D

Aaruha Technology Fund-I

40.2 134.9 8 Aus, Aibono, Singularity, CloudSEK, Bellatrix, Anlyz, Aics, Steradi-anSemi, SmarterBiz

Venture East Proac-tive Fund II

448.4 2073.5 11 Infinite uptime, Acko, Moengage, Portea, Kissht, Sresta's 24 Mantra, Edge Networks, Seclore, Mardil Medical, Perpetual, Ben Franklin, iNurture, Boonbox, Indus OS, Orca System, ekincare, Iqlect, Bog Orchid, Orion Edutech, E2E Retail, Richcore, CPO, Diabetomics, iMedX, Onebreath

Total 1178.8 5609.8 75

Daughter funds, funded by Electronics Development Fund (EDF), set up by the GoI

Source: MEITY Annual Report

Preference given to domestic manufacturers over importers

To promote ‘Make-in India’, the

government issued a public

procurement order, where it gives

preference to ‘Class 1 local suppliers’

in procurement of all goods, services

or works; the government defines

these supplier or service providers as

those whose goods, services, or work

offered for procurement have local

content equal to or more than 50%.


National Policy on Electronics, 2019

NPE, 2019 envisages India as a global hub for ESDM, with

a thrust on exports, by encouraging and driving capabilities

in the country for developing core components, including

chipsets, and creating an enabling environment for the

industry to compete globally. The NPE aims to create a

competitive electronic manufacturing sector and to achieve

a turnover of about US$ 400bn by 2025, and targets a

production of 1bn mobile handsets for export. It also aims

to create 10mn employment opportunities in the country by

2025.

NPE aims for a turnover of about US$ 400bn by 2025, and production of 1bn mobile handsets for exports

Phased manufacturing plans

Phased manufacturing plans first introduced basic custom

duty in products that can be easily sourced domestically

and then in products that are difficult to source, and are

high in terms of domestic value addition. Under this, in

the near term, products like display assemblies and PCBs

(printed circuit boards) that have lower domestic output,

large domestic opportunity, and high value addition – offer

the most obvious investment opportunities for domestic

manufacturers. Although PCB manufacturing has already

begun in India, it still needs to undergo changes to happen

at a larger scale.

India has been investing in capabilities in the manufacturing

of cells and antennas over a longer period; these products

could be the high value adding components and a realistic

long-term goal for the country. Manufacturers could

consider these products for sub-assembly in India. With the

announcement of levies on imports of display units, India

should witness a rise in domestic manufacturing. However,

components such as camera modules, ICs, semiconductors

require substantial investments and would most likely

continue to be imported. Domestic manufacturing in these

components would take time and would need to develop

gradually over time.

Year Sub-assembly Value addition

Basic Cus-tom Duty

(BCD)

2016-17 (i) Charger/ Adapter, (ii) Battery Pack, (iii) Wired Headset

Low 15%

2017-18 (iv) Mechanics, (v) Die Cut Parts, (vi) Microphone and Receiver, (vii) Key Pad, (viii) USB Cable

Moderate 15%

2018-19 (ix) Printed Circuit Board Assem-bly (PCBA)

High 20%

2018-19 (x) Camera Module, (xi) Connectors

High 10%

2019-20 (xii) Display Assembly, (xiii) Touch Panel/ Cover Glass Assembly (xiv) Vibrator Motor / Ringer

High 10%

Phased manufacturing plans in cell phones

Source: meity.gov.in

Tariff rationalization

Rationalization of tariff structures is an ongoing process. The

government rationalised tariff structures to promote domestic

manufacturing of electronic goods (such as cellular mobile

handsets, televisions, LED products). It started a phased

manufacturing programme (PMP) to promote domestic value

addition in mobile handsets and air conditioners (including

parts and components), manufacturing of mobile handsets

and their parts/ components has been steadily moving from

semi-knocked down (SKD) to completely-knocked down

(CKD), increasing value addition.

Item BCD up to 13.12.17 BCD w.e.f 14.12.17

Cellular Mobile Handsets

10% 15% (Further increased to 20% in FY19 budget)

Set top box TV 10% 20%

Colour TV 10% 20%

Microwave ovens 10% 20%

DVR/ Network Video Recorder

10% 15% (further increased to 20% in FY20 budget)

CCTV Camera/ IP Camera

10% 20%

LED Lamps 10% 20%

Smart meters 10% 15%

Power banks* 10% 20%

Increase in BCD (Basic custom duty) in products, which can be sourced/ assembled in India

*w.e.f 30.01.2019, BCD on power banks has increased from 10% to 20%


Rate of Duty

Appliances From To

Electronic goods, parts thereof

Copper and articles thereof used in manu-facturing of specified electronic items

Nil Applicable BCD

PCBA of cellular mobile phones (with effect from 01.04.2020)

10% 20%

Fingerprint readers for use in cellular mobile phones

nil 15%

Vibrator/ringer of cellular mobile phones (with effect from 01.04.2020)

nil 10%

Display panel and touch assembly of cellular mobile phones (with effect from 01.10.2020)

nil 10%

Headphones and earphones Applicable BCD

15%

Following parts of microphone for use in manufacture of microphone namely

10% nil

Government of India announced an increase in duty on electronics goods in the Annual Budget FY22

Electronic Manufacturing Cluster (EMC 2.0)

Purpose: To create and strengthen the infrastructure

ecosystem for electronics manufacturing and provide

support for creating world-class infrastructure – for attracting

investments in the ESDM sector

• The scheme was notified in October 2012.

• It helps with projects in ‘greenfield electronics

manufacturing clusters’ – here, aid is available up to 50%

of the project cost, subject to a ceiling of Rs 500mn for

every 100acres of land.

• For brownfield EMC (common facility centre), it offers aid

(as a grant) up to 75% of the cost of infrastructure, subject

to a ceiling of Rs 500mn.

• EMCs are poised to attract an investment of over Rs

548bn over the next 5-7 years, and are likely to generate

employment opportunities for about 640,000 people

once fully operational.

EMCs are poised to attract an investment of over Rs 548bn over the next 5-7 years

Production Linked Incentives (PLI) scheme – a game changer

The domestic electronics manufacturing sector in India is

not at par with competing nations, as it faces a ‘disability’

of around 8.5-11.0% due to the following – lack of proper

infrastructure, logistics framework and domestic supply chain,

high finance cost, lack of good quality power, insufficient

training in required skills, limited design capabilities, and

insufficient focus on R&D by the industry.

To alleviate its debility, the government introduced the

PLI (Production Linked Incentive) scheme on 1 April

2020, to boost manufacturing of electronics in India,

especially attracting large-scale investments in smartphone

manufacturing. PLI entails not just manufacturing, but also

assembly, testing, marking, and packaging units. The scheme

has the potential to boost the domestic manufacturing

of electronics in India and make the country globally

competitive. The scheme entails an incentive of 4-6% on

incremental sales of goods manufactured (over the base

year) under target segments, to eligible companies, for a

duration of five years after the base year. Base year for the

PLI scheme is 2019-2020 and the target segments covered

under the scheme include mobile phones, ACs, LED lighting,

laptops/notebooks, computer hardware, and IoT devices. PLI

schemes could extend to other electronics categories with

high import dependency, if the response is encouraging.

Sector Total outlay (in Rs bn)

Advanced cell chemistry battery storage 181

High efficiency solar PV modules 45

Large scale electronics manufacturing 410

Electronics (Laptops/Notebooks, Server, IoT devices, Computer Hardware)

50

Automobiles & Auto components 570

Pharmaceutical drugs APIs and KSMs 56

Medical devices 34

Pharmaceutical drugs (Specialised pharma prod-ucts, APIs/KSMs/Dis etc)

300

Telecom & Networking products 152

Textiles 107

Food processing 154

Specialty steel 63

White goods (Air conditioners & LED) 62

Total 2185

Outlay for PLI - 5-year period

Sour

ce: m

eity

.gov

.in

Sour

ce: m

eity

.gov

.in


Electronics manufacturing cluster (EMC) sites approved by GoI


Tamil Nadu: Electronics and Hardware Manufacturing Policy aims at an output of US$ 100bn by 2025

Uttar Pradesh government: In August 2020, the UP government unveiled a new electronics manufacturing policy to attract foreign investors willing to shift their production base to India, aiming to garner US$ 540bn in the next five years


Mobile PLI

• Incentive: 4-6% PLI for 5 years.

• Outlay: Rs 409.95bn (US$ 5.5bn).

• Tenure: 5 years. Base year FY19-20. Incentives applicable

from 1 August 2020.

• Despite recent challenging times, mobile PLI will lead

to production worth Rs 350bn and investments worth Rs

130bn by applicant companies.

• Additional employment generation is 22,000 jobs.

AC / LED PLI

• Incentives are 4-6% on incremental sales for 5 years.

• Effective 1 April 2021.

• Open for applications for 6 months.

• Expected incremental investment from AC / LED PLI is Rs

79.2bn for an incremental production of Rs 1.68tn over

five years.

• The export opportunity due to AC / LED PLI is of

Rs 644bn over five years; it can create additional

employment of 100,000 jobs.

• Tax revenue likely at Rs 113bn in direct taxes and Rs

380bn through GST over the next five years

Domestic companies International com-panies

Electronic component companies

Lava Hon Hai Precision Industry Co Ltd

AT&S

Bhagwati Products Ltd

Rising Star Ascent circuits

Padget Electronics Samsung Visicon

UTL Neolyncs Wistron Walsin

Optiemus Electronics Pegatron Sahasra Electronics

NeoLync

PLI highlights Benefits

Incentives for ACs & LED 4-6% on incremental sales for 5 years

W.e. f 1/4/2021

Incremental investment Rs 79.2bn

Incremental production Rs 1.7tn

Exports Rs 644bn

Incremental employment 1lakh jobs

Direct tax revenue Rs 113bn

GST Rs 380bn

Companies approved under PLI for mobile phone manufacturing

Production-linked incentives scheme’s benefits over the next 5 years

Source: meity.gov.in, media reportsSource: meity.gov.in

Mobile PLI will lead to production worth Rs 350bn and investments worth Rs 130bn by applicant companies

The export opportunity due to AC / LED PLI is of Rs 644bn over five years

Modified special incentive package scheme (M-SIPS)

To promote large-scale manufacturing in the country, the Government of India’s M-SIPS scheme will offset disability and

attract investments in ESDM. The scheme entails incentives for investments on capital expenditure, of which 20% is for

investments in Special Economic Zones (SEZs) and 25% for non-SEZs. The scheme provides incentives for both new and

expanding units. For some high-capital-investment projects like fabrications, it reimburses central taxes and duties. The

goal of this scheme is to reach net zero imports in electronics by creating an indigenous manufacturing ecosystem for

electronics in India.


The key objective of the PLI scheme is to increase the

domestic value addition in ACs to 75% from the current 25%

in the next five years, and in LED lighting to 75% from the

current 40%.

• This will lead to an increase in manufacturing of

components of Air Conditioners:

n Components include High Value / Low Value

Intermediates or sub-assemblies or a combination

thereof.

n High Value Intermediates: namely Copper Tubes,

Aluminium Foil and Compressors.

n Low Value Intermediates: namely PCB assembly for

controllers, BLDC motors, Service Valves and Cross

Flow fans for AC and other components.

• Components of LED lighting will see higher

manufacturing in India:

n LED lighting products (core components like LED

chip packaging, resisters, ICs, fuses and large-scale

investments in other components, etc.)

n Components of LED lighting products (like LED

chips, LED drivers, LED engines, mechanicals,

packaging, modules, wire wound inductors and other

components).

Overall, with this PLI, the industry will see a capex of more

than Rs 80bn over the next 5-6 years in ACs and LED

lighting.

Large Investment Normal Investments

Segment & % of BOM

Total Invest-

ment (Rs mn)

-A

Total Reve-

nue (Rs mn) -B

Total Incen-

tive (Rs mn) -C

Avg. In-centive

(%)

Invest-ment/Incen-

tive (x) (A/C)

Sales/Asset

(x)

Total Invest-

ment (Rs mn)

Total Reve-

nue (Rs mn)

Total Incen-

tive (Rs mn)

Avg. In-centive

(%)

Invest-ment/Incen-

tive (x) (A/C)

Sales/Asset

(x)

AC

ACs (Components)* 6,000 97,500 4,800 4.9% 1.3 3.82 3,000 41,250 1,988 4.8% 1.5 3.67

High Value inter-mediates of ACs**

40%-50% % of BOM

4,000 53,750 2,575 4.8% 1.6 3.64 2,500 37,500 1,825 4.9% 1.4 3.75

Lower Value intermediates of ACs***

20% of BOM 1,000 15,000 730 4.9% 1.4 3.75 500 7,500 365 4.9% 1.4 3.75

LED light

LED Lights # 3,000 60,000 2,970 5.0% 1.0 4.62 1,000 18,000 876 4.9% 1.1 4.50

Components of LED Lights ##

250 4,500 219 4.9% 1.1 4.50 100 1,800 88 4.9% 1.1 4.50

Source: DPIIT, Ministry of Commerce and Industry, PhillipCapital India Research

Note:AC: * High Value Intermediates or Low Value intermediates or sub-assemblies or a combination thereof. **Aluminum Foil, Cu tube, Compressor. ***PCB Assembly for Controllers, BLDC Motors, Service Valves for ACs, Cross Flow Fans and other components. LED light: # (Core Components like LED Chip Packaging, Resisters, ICs, Fuses and large scale investments in other components etc.) ## LED Chips, LED Drivers, LED Engines, Mechanicals, Packaging, Modules, Wire Wound Inductors and other components.

PLI Scheme: Details of the next five years


PLI for solar PV modules

The government has extended the PLI scheme to the

manufacturing of solar PV modules, with a budgetary outlay

of Rs 45bn. The PLI scheme for solar photo voltaic modules

is expected to add 10,000 MW capacity of integrated solar

PV manufacturing plants and bring direct investment of

around Rs 172bn, thus creating 30,000 direct jobs. The

scheme comes in the backdrop of India’s decision to impose

40% BCD on solar modules and 25% on solar cells from 1st

April 2022, a move that would make imports costlier and

encourage local manufacturing.

PLI Segment (in Rs mn) PC: est. no of Players each investment

segment* Incentive

Large Invest-ment

Normal Invest-ment

Total

ACs (Components) 4 4,800 1,988 6,788

High Value intermediates of Acs 3 2,575 1,825 4,400

Lower value intermediates of Acs 9 730 365 1,095

LED Lights 3 2,970 876 3,846

Components of LED Lights 8 219 88 307

Total (A) 27 11,294 5,141 16,435

Government has approved the PLI for AC and LED Lights (B) 62,380

Average. No. of Players each segment & investment size (B/A =C)

4

Total Approx. players can apply (C*Segment*Investment type) 38

PC Estimates: In AC- Major Players in Lower Value intermedi-ates & In Components of LEDs

53

Revised PLI: c.40+ applications should come in if all segments receive applications

Source: DPIIT, Ministry of Commerce and Industry, PhillipCapital EstimatesThrough this PLI we expect 40+ applications, companies globally will come to set up manufacturing for lower value intermediaries and components in AC and LED components. Indian manufacturers will form JVs with global companies to set up manufacturing for high value AC intermediaries.

PLI for IT hardware

• Incentive: 4-1% on net incremental sales over base year

of FY20

• Outlay: Rs 73.25bn

• Duration: 4 years

• 15 companies will benefit; 5 global players, 10 domestic

• PLI for IT hardware incentives will generate additional

investments of Rs 27bn and incremental production of Rs

3.26tn, of which 75% would be exported

PLI for IT hardware incentives will generate additional investments of Rs 27bn and incremental production of Rs 3.26tn

Making India a global hub of electronics (Production linked incentive (PLI) scheme for IT hardware approved)

• The government expects this PLI to reduce import

dependency for IT hardware, which is currently at 80%.

• It expects domestic value addition to rise from 5-10% at

present to 20-25% by 2025.

• The scheme could generate 180,000 direct and indirect

jobs over the 4-year period.

Sour

ce: I

ndus

try, m

eity

.gov

.in


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Impact of government policies

• Private investment: The electronics sector has attracted

US$ 14bn investment in the past five years for capacity

expansion. The higher import percentage provides

business opportunity to manufacture goods locally, which

can attract even more investment from Indian players.

• Employment opportunity: The sector employs close to

300,000 people, across product categories, including air

conditioners, refrigerators, mobile phones and washing

machines. With an increase in localisation, it has the

potential to employ additional 200,000 people in the

next five years. India has a competitive advantage over

other emerging market countries in Asia due to its wide

availability of cheap labour.

• Positive impact on component manufacturers and

adjacent sectors: Localisation of components for air

conditioners, mobile phones, refrigerators, etc, at scale,

can help reduce the cost gap with China and can also

help galvanize the micro, small, and medium enterprise

(MSME) sector.

• Operational efficiencies: The Indian consumer durables

industry has seen supply-chain disruption in all major

product categories due to heightened supply chain

localization. However, dependency on external factors

can be reduced, achieving efficiencies in supply chain,

operational procedures, inventory volumes, and logistics.

• Economies of scale and automation: With more

investments coming in, India’s economies of scale have

the potential to mirror that of China’s, which is where

the world’s largest home-appliances manufacturing

takes place. China is also the source of imports across

the world, driven by its large domestic market and early

investments in scale. The number of units sold of ACs/

washing machines/refrigerators in China are 19x/65x/9x

those in India. China has the largest AC compressor

manufacturing hub, with a total installed capacity of 86%

of the world. It has emerged as a low-cost manufacturing

spot for consumer durables, and is responsible for 33.5%

of the global AC exports and 23% of global refrigerator

exports. However, India will eventually secure a decent

portion of the total global exports market for air

conditioners and other consumer durables. In the current

environment, when the world is looking for an alternate

hub, India is amongst the top countries that stand to

benefit. The opportunity is ripe for Indian manufacturers

to step up and make a dent at the global level in the

consumer durable industry.

• Becoming competitive in products like washing

machines, refrigerators, etc., and mobile phones. With

the government’s initiatives, Indian manufacturers have

a strong chance of becoming cost competitive in some

products. Although, washing machines and refrigerators

have no direct schemes (such as PLI), a robust electronics

components ecosystem due to PLI in large-scale

electronics manufacturing will lead to the already

indigenised product category, i.e., semi-automatic

washing machines and refrigerators (of capacity below

300 litres) becoming competitive in terms of exports.

India aims to become a strong electronics component manufacturing base

The number of units sold of ACs/washing machines/refrigerators in China are 19x/65x/9x those in India


Mechanism Impact on disability Remarks

Production linked incentives scheme 4%-6% Financial incentives on large scale production

SPECS 0-1.6% 20% capex subsidy annualised on 8% capital cost

EMC 2.0 1% Logistics, Plug and Play infrastructure

RoDTEP 0.2%-0.7% In lieu of MEIS as a duty-free scrip administered by DGFT

Concessional Rate of Income Tax 0.2%-0.9%

Ease of doing business measure 0.50% Custom bonded warehouse, Port logistics, ECB reforms

Total 5.9%-10.7%

Impact of new and existing schemes

Recent investments in EMS in India The impact of the government’s policies has led to an

increase in global interest, which in turn has boosted

investments in the country. According to DPIIT (Department

for Promotion of Industry and Internal Trade), FDI inflows into

the electronics sector between FY01 and FY20 stood at US$

2.91bn.

Some key investments and developments in the Indian

ESDM and electronics segment are as follows:

• Apple’s contract manufacturers: In September 2020,

Wistron, Pegatron, and Foxconn announced investments

of +US$ 900mn over the next five years. The investments

are mainly for capacity expansions and ramping up of

domestic production of mobile phones.

• Samsung Electronics and Apple Inc.’s assembly

partners: Announced investments worth US$ 110bn to

establish mobile-phone manufacturing units in August

2020.

• Hon Hai Precision Industry Co Ltd: Plans to invest US$

1bn to ramp up production at its Sriperumbudur plant

in Tamil Nadu over the next three years and hopes to

generate 6,000 additional jobs.

• Aequs: In October 2020, it committed to an investment

of Rs 35bn towards setting up of a consumer electronics

cluster in Karnataka.

• Tata Group: Announced its plan to invest Rs 50bn in

October 2020 to set up an Apple phone component

plant in Hosur, Tamil Nadu.

• Sahasra Electronics: In October 2020, it announced

plans to invest Rs 3.5bn in assembling mobile phone

memory chipsets, laptop hard drives, and motherboards

in India over the next four years. The company also set up

two manufacturing facilities in UP and Rajasthan.

• PG Electroplast: Started production at its AC ODU

(outdoor unit) assembly line in 2020; the complete

ODU plant will begin manufacturing in 2021. The plant

is at Ahmednagar in Maharashtra and should generate

revenue of Rs 1bn for the company in the first year.

• Phillips: In May 2020, it announced investments worth Rs

2.5-3.0bn to boost its manufacturing and R&D facilities in

India.

• Nokia: It partnered with Flipkart in November 2019 to

enter the consumer durables market in India.

• Godrej Appliances: In January 2020, it announced plans

to foray into the air cooler segment with a target of

acquiring 15% market share in the next five years.

Source: Industry, PhillipCapital research

Key Segments (USD Bn)

Global Market Size

India

Market Size ExportsTargeted Produc-

tion in FY25Targeted Value

Addition by FY25

2019 2025 CAGR % 2019 2025 CAGR % 2019 2025 CAGR %

Mobile Phone 495 640 4% 24 80 22% 0.16 110.0 197% 190 34%

Personal Comput-ers & Monitors

237 237 0% 5.53 5.5 0% 0.04 41.9 218% 47.4 25%

Network Equip-ment*

49.7 112.27 15% 1.3 2.87 14% 0.01 13.8 229% 15.6 18%

Note: * Ethernet Switches, WLAN & Routers. Source: IT, Industry, PhillipCapital estimates

Government policies will lead to better in value addition, domestic production, and strong exports growth


Company name CAPEX ( in Rs

mn.)

For PLI*

State Comments Capacity Date of Announce-

ment

Haier Appliances 30,690 Noida, NCR Refrigerators, washers, ACs are expected to start 1st phase by June'21

2019

HP Ltd 36,000 South India Capex over the next 5 years for computers and laptops 2019

Godrej Appliances 11,000 Shirwal and Mohali

Will invest till 2022; with this will be increasing capacity by 33% for premium products

6.5mn units p.a

2019

Xiaomi India 35,000 Noida, UP Xiaomi Corp (still on)* 2019

Jaina Group 10,000 Manufacturing hub for Sansui brand products; will export to other geographies, including the neighbouring South East Asian markets. Capex will be over the next 3 years.

2019

VIVO India 35,000 Smart phone (120mn annual capacity) 2019

Amber Enterprises 3,000 PLI Pune & South India

Greenfield facilities 3mn units p.a 2020

Samsung India 48,250 NCR, Uttar Pradesh

Mobile and IT display production unit 2020

Lava International 8,000 Shifting operation from China to India, capex will be over the next 5 years.

2020

Dixon Technologies 2,500 PLI South India Padget Electronics 2020

Thomson 10,000 Will invest in the next 5 year for home appliances. 2020

Daikin* 500 R&D 2020

GMCC 8,000 Compressor plants 2020

Highly* 500 Increasing the capacity of compressor plant 2020

TCL 24,000 Capex for TV plants 2020

ABAJ 1,000 For a manufacturing unit with a capacity of 2.5mn TVs and 0.6mn ACs

2020

Voltas* 5,000 PLI Planning to set up an AC plant in South India 2020

Realme 3,000 Eight new SMT lines for TVs in Noida 2020

Tata Group 70,000 For mobile phones in south India 2020

Micromax 5,000 PLI For mobile phones, 2mn/month current capacity; increasing it to 3mn/month.

2021

Pegatron Corporation 11,000 PLI Chennai Leased 500,000 sq. ft. of land 2021

Hon Hai Precision Industry Co Ltd

39,000 PLI Tamil Nadu Expanding manufacturing capacity 2021

Sahasra Semiconductors 1,500 ELCINA, Bhiwadi ELCINA 2021

ePack Durables Solution 1,000 PLI ELCINA, Bhiwadi ELCINA 2021

Havells India 2,500 PLI Sri city, Chittoor AC plant 0.56mn units p.a.

2021

PG Electroplast 1,000 PLI Ahmednagar AC plant AC: 0.9mn p.a. -IDU + 0.4mn

-ODU

2021

Panasonic 3,000 Jhajjar Panasonic Technopark 2021

Super Plastronics 3,000 Building IOT capabilities 2021

SPPL - Kodak TV 3,000 Expanding capacity for TV assembly 2021

Bosch 8,000 Dishwashers, washers, refrigerators 2021

Blue Star 1,350 PLI Wada Capacity expansion 2021

Burly Home Appliances 500 Set up a manufacturing plant in Telangana for air coolers 2021

Total 394,600

Total Ex. Of Expected PLI

349,940

India will see total capex of Rs 323bn over the next 3-4 years in the electronics industry

Note

: * e

stim

ates

. So

urce

: med

ia re

ports

, Phi

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apita

l Res

earc

h


Some industry views

“ICEA welcomes the new UP Electronics

Manufacturing Policy 2020, which is aligned

towards the fulfilment of the NPE 2019 goals.

On the basis of such policies, India should

be able to focus its efforts on capturing the

investment opportunities from global as well

as domestic stakeholders to establish itself

as the world’s number one mobile phone

manufacturing destination. UP is already home to

60% of the total manufacturing units related to

mobile phones and components, and with such

policy support the state would further witness

accelerated establishment of units in the short

to medium periods. These policy interventions

would pave the way for shifting of production

bases from China and elsewhere to UP and

India.”

Pankaj Mohindroo, Chairman,

Indian Cellular & Electronics Association (ICEA)

“Over the next five years, the PLI scheme is likely to

lead to production of mobiles and components worth

Rs 11.5 lakh crore (Rs 11.5tn). Of these over 7 lakh

crore (7tn) worth of products will be exported. This

scheme is also expected to generate 3 lakh (300,000)

direct jobs and over 9 lakh (900,000) indirect jobs in

the country.”

Ravi Shankar Prasad,

Minister for Electronics and Information Technology

(MeitY), Government of India

“Electronics manufacturing in India has registered 23

percent cumulative annual rate of growth over past

5 years. The growth is likely to be 30% yoy for the

next 5 years. Mobile manufacturing in the country

has grown from 6 crore (60mn) handsets five years

ago to 33 crore (330mn) handsets at present, with

90% of the mobile phone requirements being met

through domestic production. In next 5 years, growth

in exports could be 40-50% at a bare minimum.”

Ajay Prakash Sawhney, Secretary,

Electronics and Information technology (MeitY)

Currently, planned capex

amount is Rs 349.9bn*

Total expected capex is Rs 565bn

Mobile PLI capex

amount is Rs 110bn

AC and AC components,

LED PLI capex is Rs 99bn

Laptop and tablet

capex is Rs 33bn

+

+


De-risking the global supply chainIndia is the top choice when global players hedge their bets with a China +1 strategy

CHINA + 1 STRATEGY

What made China an export hub and what are its policies?By 2003, China’s export growth rate

was 7 times higher than the rate of the

whole world combined. Foreign direct

investment in the country has seen a

sharp rise, with presently over a billion

dollars invested in China every week.

Initial conditions that favoured growth

included a large population base, a low

wage labour market and the location

of the country. Additionally, the country

went through many structural reforms,

which helped it boost its competitiveness

and efficiency. It allowed its rural

households to invest their savings in

manufacturing and transport and lifted

FDI restrictions. This, along with inclusion

in the WTO, encouraged manufacturing.

China’s government removed red tape

and opened its financial markets to the

world, which also contributed to the

upswing in growth.

A major part of China’s strategy is a focus

on attracting foreign companies to set

up manufacturing facilities in the country,

which helps the local producers improve

manufacturing efficiency, as they better

understand the production procedures

of foreign companies. For this, China

provides incentives, based on the value

of investments. With different incentive

structures in place for

different sectors, the

country’s focus has

been on encouraging

sectors that are

employment-focused

and technology-driven.

The government has

specific incentives

designed for domestic

producers as well.

In addition to tax

incentives offered,

support programs also

included appropriations

for capital and

operational costs, for

Total exports from China in absolute terms from 1990-2019 (USD bn)

Sour

ce: W

orld

ban

k


e.g., financial aid for R&D, transport of

labour and workforce training, exemption

in costs for construction of dormitories,

etc. The Chinese government made sure

that the working conditions were safe,

infrastructure facilities were improved,

land was easily available, good quality

and reasonably priced power supply was

ensured, and that the location of the SEZs was usually close

to the airports. The government conducted periodic reviews

to examine the impact of its policies.

Factors that helped China become an exports hub

Chinese people from Hong Kong and Taiwan were the first

to open factories in China. They gradually learned and

conquered mass manufacturing. They had a large domestic

workforce, many of whom aspired to jobs in foreign factories.

The Chinese government became involved in motivating its

citizens to work in factories and loosened controls on them,

allowing them to move around the country and find their

own jobs.

American corporations that were pro-outsourcing moved

their manufacturing bases to China in the early 1990s.

Wall Street fostered globalization and outsourcing as

captivating world trends – which further helped the

country achieve great export growth. China attracted a

lot of foreign investment from the US, Japan, and other

developed economies through Hong Kong or Taiwan. In

exchange for paying lower wages, these companies trained

workers by providing base knowledge in

supply management, manufacturing, and

engineering. China has not only mustered

huge capital by producing every tangible

product possible, but also developed a robust

industry framework. It has also developed

strong R&D capabilities that has allowed it to

expand the outsourcing of manufacturing to

non-labour-intensive industries as well.

Lower wages: Most of the Chinese were lower-middle class

and poor until late 20th century. The minimum wage was

very low and people were willing to work for low wages and

benefits.

Business ecosystem: A sustainable business ecosystem

demands a nexus of suppliers, component manufacturers,

distributors, government agencies and customers who all

work in tandem. China has built an ecosystem to support the

manufacturing supply chain, which includes low-cost workers,

technical workforce, assembly suppliers and customers.

Global companies took advantage of China’s supply chain

efficiencies to keep their overheads low and margins high.

Lower compliance: Chinese companies kept long shift

hours, sometimes employed under-age labour, and were

not required to provide their workers with reimbursement

insurance. Some factories even had policies where the

workers were paid only once a year – which prevented them

from quitting before the year was over.

Taxes and duties: Exported goods were liable to zero VAT;

few input materials in the production of consumer goods

were exempted from import duties. The lower tax rates

helped to keep the cost of production low, enabling the

country to attract investors and global companies looking to

make inexpensive goods.

Currency: China kept the currency from appreciating by

buying dollars and selling yuan.

Policy interventions that helped boost exports

China implemented export promotion measures such

as tax rebate, export subsidy, and foreign-exchange

retention quotas – nationwide. Its central government

rolled out a series of massive reforms across sectors,

including finance, banking, taxation, budget, etc. It began

formal talks with GATT (General Agreement on Tariffs and

Trade), contracting parties to get legal inclusion in the WTO

(World Trade Organization). It became a formal member of

China attracted a lot of foreign investment from the US, Japan, and other developed economies through Hong Kong or Taiwan


the WTO in 2001. In the years that followed, it implemented

all WTO commitments and promoted market-oriented

economic and trade liberalization, which led to an increase

in transparency in trade laws. Producers could calculate their

input and output costs at international prices.

China amended its Foreign Trade Law, which led to all

domestic companies and individuals enjoying trading rights

of exports and imports (earlier limited to foreign enterprises

and large government owned companies). It periodically

reviewed and revised many other trade-related laws and

regulations. It also drove significant reforms in foreign

exchange and abolished the dual exchange rate system. At

the same time, it kept import trade barriers high. China’s

China’s strategy was focused on promoting exports by reducing import dependency and practicing import substitution

strategy was focused on promoting exports by reducing

import dependency and practicing import substitution. It

encouraged new ‘interest groups’ of export sectors to

grow while it safeguarded state-owned industrial sectors

from external competition.

After the global financial crisis of 2008, China took steps to

stabilize exports by promoting trade financing and trade

facilitation, and loosening export control. It changed its trade

policy to stabilizing external demand and stimulating internal

demand. It relaxed its regulation of FDI and simplified it

further. Central ministries and state governments act as

special kinds of pressure groups in China. State owned and

private enterprises enjoy government backing, and usually

influence the designated authority in an informal behind-

the-scene style. With an increasing integration into the world

economy, China is confronted with increased challenges of

foreign interests, including an institutionalized world trading

system, bilateral dialogues, and trade negotiations. All these

parties have a profound impact on China’s trade policy.

Major electronics companies, in the last few years, have shifted their base from China to India, Thailand, Malaysia, Indonesia, Vietnam, Taiwan, etc. Samsung Electronics shut its smartphone factory in China and shifted its base to Vietnam. LG and Apple have partly shifted their base from China to India (through Hon Hai Precision and Pegatron) and Vietnam. GoPro relocated its manufacturing from China to Mexico


different economies, there arose tremendous opportunity out

of the supply-chain disruption in China that followed. India

did well in gaining from this disarray, as did others. However,

while many other countries possess better infrastructure and

ease of doing business, India’s unique advantage is that it

has a large domestic market.

As per the WEF, China has 28% share in the total global

manufacturing output while India is at the sixth position, with

only 3%. The supply chain disruption out of China due to

the pandemic, coupled with the trade war between USA and

China, led to a change in many global companies’ priorities

and them investing in other (more democratic) countries –

presenting opportunities for countries like India.

China has become the leading manufacturer of goods in the

world – in fact, it is called ‘the world’s factory’, but economic

China + 1: A new global trade strategyThe pandemic has caused major world powers to rethink

their dependency on one nation for manufacturing – a

strategy which is equal to risking everything on the success

of one venture. When lockdowns across the world led to

a complete halt in trade of goods and services between

Cheap labour, low costs, and rising government support through various incentives has attracted a lot of global attention for India

India’s unique advantage is that it has a large domestic market

Samsung hassignificant sharein Vietnam’s economy and contributes +20% to its GDP

Companies moving out of China, over last 2-3 years


changes in the country are causing a shift in its priorities

and are reducing its earlier advantages. Wages have tripled

in the past decade, along with a substantial increase in the

cost of production; these factors are causing manufacturers

to shift to other low-wage countries; this is where India

stands to gain. India has the second-largest population in the

world with relatively lower penetration, which provides huge

headroom for growth. Cheap labour, low costs, and rising

government support through various incentives has attracted

a lot of global attention for India.

The trade war has led to reallocation of supply chains from

China to India. Many global companies are interested in

setting up a manufacturing base in India. For companies,

outsourcing production to contract manufacturers (in India)

helps rationalise costs and achieve economies of scale.

A ban on imports of consumer durables and an increase

in the basic customs duties has helped boost India’s

domestic manufacturing. The government has been working

hard on providing the required infrastructure for global

manufacturing, by setting up manufacturing clusters that are

conducive for production.

Vietnam has been one of the key beneficiaries of the

China +1 strategy, and has seen a massive scale up in its

electronics production

Vietnam has been one of the key beneficiaries of the China

+1 strategy, and has seen a massive scale up in its electronics

production

The US-China trade war and the rising costs of manufacturing

in China have been beneficial for Vietnam, which has taken

full advantage by participating in regional and global supply

chains. Mobile exports from Vietnam stood at over US$

50bn in 2019, ranked second worldwide, and the country

has established itself as a key electronics exporter; it went

from 47th place in 2001 to 12th place in 2019. Vietnam’s

electronic exports rose from US$ 47.3bn to US$ 96.9bn in

2019, whereas its electronic imports have nearly doubled

from 2015 to 2019. Electronics exports made up 36% of

total exports from Vietnam, an increase of 1.15% over 2018.

Electronics imports accounted for 30% of total imports,

increasing by 2.01% over 2018. Sales of electronics in the

country have also increased by 12.1% over 2018. Export

share of foreign-based electronics companies accounted for

over 90% of total exports and covered 80% of the domestic

demand. As of June 2020, many notable global giants have

finished relocating to Vietnam; LG’s smartphone production

has moved entirely from South Korea to Hai Phong; Apple

moved part of its AirPods production, and Nintendo has

shifted a part of its Switch Lite game console to Vietnam.

Only Singapore and Hong Kong rank higher overall than

Taiwan on ease of doing business in East Asia. There are

better considerations for manufacturers in Taiwan like paying

taxes, enforcing contracts, and getting electricity. China

ranks 10th overall in East Asia for ease of doing business

after Malaysia, Thailand, Vietnam, and Indonesia (ranked 4th,

5th, 8th and 9th respectively). Although prices in China are

cheaper, manufacturing in Taiwan is better in terms of lead

times and trade-related overhead costs.

In February 2021, production by electronic component

makers rose 16% over the previous year, marking it the 15th

successive month of double-digit increase in the light of

rising shipments of tech devices such as 5G communications

and HPC devices, automotive electronics, and the IoT. Flat

panel suppliers enjoyed a 49.81% yoy increase in production

in February, as a booming stay-at-home economy boosted

demand for screens for IT products and TV use.

Now, going forward, we can expect a massive uptick in

electronics production in India as well, as India is fully

focused towards ramping up its large-scale electronics

manufacturing with several global giants coming in to the

country.

Outsourcing production to contract manufacturers (in India) helps rationalise costs and achieve economies of scale


Ease of doing business metric Mainland China Taiwan

Ease of doing business rank (out of 190 economies) 78 15

Trading across borders rank (out of 190 economies) 97 55

Time to export: Border compliance (hours) 23 17

Cost to export: Border compliance (USD) 533 335

Time to export: Documentary compliance (hours) 14 5

Cost to export: Documentary compliance (USD) 90 84

Taiwan ranks higher than China in every single metric related to trading across borders in the world

Vietnam export-import share; highest share with China

China USA South Korea Hong Kong Japan Commodities

Exports from Vietnam 19.30% 18.20% 9.10% 4.90% 4.89% Transmission apparatus

Mobile phones

TVs

Cameras (41%)

Electrical apparatus (18.2%)

Electronic integrated circuits

Micro assemblies (11.9%)

Imports to Vietnam 33% 6.52% 31% - 7.99% Electronic integrated circuits

Micro assemblies (40%)

Electrical apparatus (17%)

Semiconductor devices (6%)

Not only does Taiwan rank better than China in the above metrics, but is also a leader in South East Asia in this regardSource: Industry, PhillipCapital Research


Not only does Taiwan rank better than China in the above metrics, but is also a leader in South East Asia in this regard


Why does the world need a China +1 strategy?

1) Risk diversification: Chinese operations face several

potential risks. Therefore, operations in other countries

can safeguard from any such losses. Problems of quality

concern can also be offset by diversifying operations to

other countries. Political, social, and economic changes

can further hurt the production processes, thus by

diversifying, companies can protect themselves against

such risks.

2) Lower costs: China no longer provides the lowest

costs for many goods and services. Wages have tripled

in the country over the past decade, and the average

age of the population is rising. The “one family one

child” policy has created labour shortages due to no

replacement for old workers. Government reforms

(covering pension and insurance compensation) have

also added to the wage bills of international companies.

3) Reducing overdependence: Over reliance on one

country for production of all goods and services is

a concern – business activities become too heavily

concentrated. Any disruption in production processes

can lead to a global shortage. Expanding manufacturing

Note: 1 being the best. Source: competitive index, WEF, PhillipCapital Research

Key indicators comparison for global manufacturing opportunity China India Brazil Vietnam Indonesia

Domestic market consumption

Export market opportunity

Smartphone user penetration

Average wage (manufacturing)

Barriers to entry for new players

Barriers to entry for manufacturing

AC penetration

White goods penetration

High Mid Low

Indicators comparing competitive strength of China, Brazil, Vietnam, and Indonesia

to other countries can help prevent this.

4) Access to new markets: In selecting a country for

manufacturing, global players do not just look at

business environment sustainability for manufacturing,

but also the size of the new market, the opportunities

for growth, etc. While China was once seen as just a

low-cost site, it has developed into one of the most

important markets in the world, which consideration can

be applied for all the “plus-one” candidates.

5) Disappearing tax incentives: Since 2009, most tax

incentives offered to foreign enterprises have expired.

China’s unification of its corporate tax system has led to

an increase in tax outgo for some enterprises operating

in the country.

6) Knowledge transfer: The China’s plus-one strategy

can help in identifying potential important markets.

Companies can apply valuable lessons learnt in

production processes in China to other geographically

or culturally similar economies, as they could throw up

similar challenges. The transfer of learning is particularly

valuable where the second economy is an attractive one

and has huge headroom for growth.

Why is India the chosen one in the China +1 strategy?In the +1 strategy, India’s closest competitors are Indonesia,

Thailand, Philippines, Vietnam, and Bangladesh. However,

among these, India ranks either #1 or #2 in factors such

as institutions (skill development, professionalism, etc),

infrastructure, macro stability, financial system, and market

size.


India’s rank among its closest competitors: Indonesia, Thailand, Philippines, Vietnam,

and Bangladesh

Advantages of choosing India as a manufacturing destination

• Investments in making India an export hub can provide

an exports opportunity, as well as the chance to cater

to the huge Indian market: India caters to only 3% of

the total global exports market, while China contributes

With the recent advent of the EMS industry in India, companies who want to relocate to India without making significant investments can outsource their manufacturing and reduce their capital risk. This can help them achieve economies of scale and be assured of the quality standard of products

close to 30%. There is huge legroom available to India

to boost its GDP through an increase in manufacturing.

In addition, India has a large domestic market with

significantly lower penetration compared to the global

average, this provides an incentive to global firms to set

up manufacturing units in the country.

• One of the major reasons in picking China was the low

wage structure, which does not apply anymore. China’s

cost of production and minimum wage levels have

increased significantly in the last decade. India’s labour

costs are about half of China’s labour costs.

• Due to the lack of focus on manufacturing, India has

lagged in its share of exports compared with its peers.

Improper policies, lack of ease in doing business, and

procedural complexities, were all reasons due to which

India could not expand its export footprint. With its

recent jump to 63rd position in Ease of Doing Business

and strong government-backed incentives such as PLI,

EMC, SPECS, India could attract the investments required

for it to become a major global player.

• With the recent advent of the EMS industry in India,

companies who want to relocate to India without

making significant investments can outsource their

Can India mirror China in becoming a manufacturing/export hub?

Sour

ce: I

ndus

try, P

hilli

pCap

ital R

esea

rch


India’s domestic production has seen 25% CAGR over FY15-19

Sour

ce: M

eity

Ann

ual R

epor

t FY2

0

manufacturing and reduce their capital risk. This can help

them achieve economies of scale and be assured of the

quality standard of products. Outsourcing manufacturing

can help them direct their focus towards innovation,

marketing, and sales. Outsourcing also helps companies

bring down other production-related costs and provides

an array of customized manufacturing designs to choose

from.

• India has been working on developing a component

ecosystem to boost domestic manufacturing of

electronics. This could help in increasing domestic value

addition to the tune of 50% (from the current 34%) in the

next five years.

• Political disengagement with China, along with an anti-

China sentiment is compelling many global players to

find alternate destinations for their supply chains.

India aims to cater to its demand of electronics via domestic

manufacturing by FY25. The country’s demand currently

outstrips its manufacturing; majority of its electronics are

imported. This has led to widening of the fiscal deficit.

With import bans and hike in custom duties, and demand

expected to more than triple by FY25, companies looking to

move to India could be huge beneficiaries.

Can India mirror China in becoming a manufacturing/export hub?

India is the sixth largest economy and one of the most

populous countries in the world, with a population of 1.3 bn.

As per the WEF, India’s share in total world export stood at

3-4% in 2019 whereas China was responsible for 30% of the

total manufacturing output – which shows huge headroom

for growth. India has one of the largest domestic markets and

has improved its rankings by 79 positions in the last five years

in terms of ease of doing business. The country ranks 63rd

among 190 nations. The pandemic and the trade war have

led to a shift in thought towards expanding manufacturing

to more countries to not be overdependent on China. India

could achieve its goal of becoming a manufacturing hub and

gain sizeable market share in total world exports.

India has a large domestic market

Globally, companies have been looking to expand their

manufacturing bases to more South East Asian countries,

to offset risks posed by over-dependency on just one

country. In selecting a destination to conduct operations

in, a company not only makes decisions based on the cost

India has the largest domestic market after China and the penetration of consumer appliances is low, which provides a huge headroom for growth

India’s consumer durables and electronics penetration (%)

Sour

ce: I

ndus

try, P

hilli

pCap

ital R

esea

rch


of production, policies, etc., but also on the opportunity

the country presents. India has the largest domestic market

after China and the penetration of consumer appliances is

low, which provides a huge headroom for growth. There

has been an increasing interest in companies globally to set

up manufacturing units and supply chains out of India, to

grab the opportunity domestically and internationally. The

penetration across consumer durables is relatively lower

than the global average, thus providing huge headroom for

growth.

Indian government’s incentives

India has come a long way from the 1900s, when there was

a system of licenses and permits required for companies to

manufacture goods and set up production units (License

Raj), to 2020, where the government is coming out with

incentives across sectors to boost domestic manufacturing

through import substitution. India’s government, in recent

years, has been hiking import duties and banning imports

of many products – to achieve self-reliance and boost

domestic manufacturing. In the last two years, it has come

out with schemes such as PLI, SPECS, and EMC 2.0 which

offer various incentives to companies wanting to manufacture

in India. Special clusters are being set up with adequate

infrastructure facilities and proper power supply to ensure

there is no disruption in the production process. It has

offered incentives under PLI and SPECS on incremental

sales of goods, which had led to a surge in global interest. It

passed NPE in October 2019 and introduced M-SIPS, which

should fuel the growth of the consumer durables industry.

Outsourcing or contract manufacturing is a new concept

that is gaining traction in India

Outsourcing of manufacturing helps companies to focus

more on marketing, sales, and the innovation aspect of

their businesses. Many well-established companies have

been outsourcing their production activities to contract

manufacturers – to focus on other integral parts of their

businesses. Contract manufacturing can help companies

reduce costs and save time by manufacturing only those

products bearing the highest margins. They can outsource

other production activities. India has seen its share of

manufacturing through ODMs increase, where companies

have outsourced their entire end-to-end production cycle.

It is a significant leap for Indian contract manufacturers, as

large electronics enterprises have started believing in the

skills of Indian ODMs and their capabilities. Going ahead,

the share of ODMs in contract manufacturing will increase,

as they provide contract manufacturers higher margins

and profitability. The increasing trend of outsourcing is

also supporting established companies such as Lloyd,

IFB Industries, MIRC Electronics, etc., with huge installed

capacity, as they are using their unutilized capacity to

manufacture for other companies, leading to improvement

in their operating efficiencies. Also, online and modern

trade companies (and their respective brands) are increasing

their share in India; these companies will continue focus on

branding, distribution, and selling. For manufacturing, they

will depend on outsourcing partners.

Technical skill development is essential for improving

overall factor productivity

To increase the share of manufacturing the government must

conduct nationwide training camps to help develop the

technical skills required for manufacturing under electronics,

biotechnology, healthcare etc. Investments by the private

sector in skill training can increase productivity and reduce

the skill gap between India’s labour and China’s labour.

India’s government, in recent years, has been hiking import duties and banning imports of many products – to achieve self-reliance and boost domestic manufacturing

India AC penetration vs. other countries

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Tax reforms to boost manufacturing

To boost manufacturing, the Indian government has worked

proactively towards a more business-friendly tax structure.

Last year the government slashed corporate taxes from 25%

to 15% for all manufacturing firms incorporated after October

2019 and beginning operations before March 31, 2023. India

has one of the lowest corporate tax rates globally. This move

has helped India to compete with other ASEAN countries

such as Thailand, Vietnam, and Indonesia for a greater

market share of total manufacturing. State governments have

also been providing tax incentives to specific sectors, for

which there is no major capital outgo.

New labour codes

The Indian parliament has passed four codes on wages,

industrial relations, social security and Occupational Safety

and Health (OSH), which will ultimately rationalize 44 central

labour laws. The code on wages was passed by Parliament

in 2019, while the three other codes got clearance from both

the Houses in 2020. These codes are favourable for both

employers and employees; some of the provisions like 14

days of notice prior to strikes remove uncertainty in day to

day operations and give some time to employers to have an

alternate plan of action, which wasn’t there in previous labour

laws.

Other factors

Improvement in ease of doing business, conducive

environment for manufacturing, focus on skill development,

availability of land, proper supply of power, creation of SEZ’s,

reforms in labour and tax laws, and proper policy structuring

can help India become an export hub to the world.

• FDI reforms – Government allowed 100% FDI

through the automatic route in electronics hardware

manufacturing and 51% in multi-brands. These reforms

will attract more investments, which should boost

manufacturing.

• Replacement market – With disposable incomes rising,

and easier financing options available, the consumer

durables industry has seen a shortened product cycle,

which had led to growth in the replacement market for

consumer durables, which provides further opportunities

for growth.

• Rising exports – Steps taken towards boosting

manufacturing has led to a steady growth in consumer

durables, with exports rising year-on-year and imports

staying relatively flat.

FY14 FY17 FY21

Mobile Phone India China India China India China

Raw material 70% 60% 65% 55% 55% 53%

Utilities 12% 13% 12% 14% 13% 15%

Labour and Over heads 12% 13% 13% 18% 13% 20%

FY14 FY17 FY21

Washing machines India China India China India China

Raw material 58% 54% 54% 52% 45% 50%

Utilities 13% 12% 12% 13% 12% 14%

Labour and overheads 12% 13% 13% 16% 13% 18%

FY14 FY17 FY21

LED Lamps India China India China India China

Raw material 70% 65% 60% 50% 50% 48%

Utilities 12% 13% 12% 14% 13% 15%

Labour and overheads 12% 13% 12.50% 16% 13% 18%

Price difference between India and China is likely to narrow

Source: Dixon DRHP


Theme Disability % Reason Factors to consider

Local supply chain

3-4% 1) Limited raw material available in India. 2) Limited component suppliers/distributors.

India needs larger availability of components; needs to build a component ecosystem.

Transportation 2% 1) India has 13 major ports and less than 200 minor ports; China has 30 major ports and 2,000 minor ports. India’s minor ports are under-performing because of serious logistical and connectivity problems. 2) India does not have international transhipment ports. It depends on Oman and Sri Lanka (GoI has recently announced its plan for building a transhipment port in the Nicobar Islands).

1) Private public partnerships are necessary for expediting the development of the transport infrastructure. 2) Supply chains vary from state to state, and depend on the availabil-ity of raw material, local talent, and govt. support. Greater focus should be given to regional and cluster development.

Power The cost of power in India remains lower than that of other Southeast Asian countries.

Labour India lacks a skilled workforce that can be scaled to meet the electron-ics industry’s demands.

India should focus on increasing the pace of skilling its workforce. India’s cost of labour is lower than China, but China’s labour quality and efficiency is far higher.

Custom clearance

1% In this, India is below the world’s standards. These are major challenges: (1) Uncertainty of the head under which new products are to be cleared and (2) duty claims with retrospective effect.

Tax 2-3% India's tax rate is significantly high. Corporate tax rate in India is 25%; it is 17% in Singapore; 20% in Vietnam, Thailand, and the Philippines.

In Sept 2019, GoI introduced a favourable tax regime for new manu-facturing companies - offering an effective tax rate of 17%.

India’s disability

Comparing India’s manufacturing environment with other global manufacturing hubs

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Theme China Vietnam Malaysia Taiwan Brazil India

Freight (as % of cost of production)

1% 8-10% NA NA NA 13-15%

Turnaround time (TAT) (in days)

0.5-1.0% 2.5% 0.5-1.0% 0.5-1.0% 1.5% 2.0-10.0%

Direct tax 25% Tax exemption and 10% for high-tech manufacturing

24% 20% 15% 25% overall, for new manufacturing units at 17%

Indirect tax 0% on exports, refund-able VAT

Import tax holiday Tax exemption - 20-70% for increased value exported goods.

Exported goods do not attract tax

1) Expenses carried out for technological research and innova-tion are deductible from income tax. 2) Expenses carried out for technological research and innova-tion are deductible from income tax.

Exported goods do not attract tax.

Cost of borrowing 4.30% 4% 5.52% 2.30% NA 8-10%

Cost of labour (in USD per month)

950-1,200 237-350 1,000-1,100 1,800 750-950 250-300

Availability of power Uninterrupted Uninterrupted Uninterrupted Uninterrupted Interrupted Uninterrupted

Component eco-system

Localised Import dependent Semi- localized Localized Import dependent Import dependent

Incentives 1) Rebate of 17% to export companies, ECR companies exempted from paying VAT. 2) Exempts exported goods from any kind of consumption tax. 3) Tax deduction on R&D expenses for small and medium technology-based enterprises.

1) Import tax breaks. 2) Offsets in the form of refunds on import duties. 3) Exemption from VAT for exporters.

1) Allowance on increased exports. 2) Income tax exemp-tion for significant increase in exports.

1) Tax incentives for exporting in free trade zones. 2) R&D tax credit up to 15% of the total R&D expenditures.

Exemption from the taxes levied on import of certain products used for the final exported product.

2-5% MEIS scheme,4-6% PLI scheme

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POSITIVE

• Some Japanese companies are

planning for higher backward

integration. They are planning

to set up critical AC components

in India. With this, India can see

significant improvement in value

addition.

• Although self-reliance is far

away, this time, the industry/

government is walking towards it.

We are starting with assembling

and then will move towards

manufacturing.

• Ban on imports is helping to

improve domestic manufacturing,

but also resulting in an increase

in costs, as customs duty has

increased on components.

Component manufacturing should

be the first aim of Atmanirbhar

Bharat.

• Global component manufacturing

companies are planning to shift

to India. Like TCL (putting up an

open cell plant), Samsung (mobile

open-cell plant), and GMCC

(compressor) etc.

• Exports: Expect middle-east to be

low hanging fruit for exports.

• In TVs, India already has higher

installed capacity for assembly;

currently players are operating at

50% CUF.

• E-com players and modern retail

channel partners are gaining

market share in the consumer

durables industry, as they are

selling under own brands or have

tied-up with national brands

such as BPL, Kelvinator, Nokia,

Motorola, etc.

• Modern Retail (MR)/E-com

gaining share from regional retail

and brick and mortar stores.

These chains have the advantage

of sourcing at better prices.

• In Modern Retail, Reliance

Digital is seeing higher growth,

increasing its presence, and

gaining market share. Exclusive

tie-ups with brands such as

BPL and Kelvinator are helping

Reliance to offer products at

competitive rates.

• For Samsung, a change in

management in Korea has led

to a higher focus on driving

its appliance business in India.

Samsung is committed to make

huge investments in mobile panel

manufacturing in India, as it will

assemble LCMs in India. ACs are

now seeing very high production

in-house.

NEGATIVE• Contract manufacturing

is a service industry. Such

manufacturers must provide timely

service to companies. Costs are

secondary; everyone knows the

cost matrix.

• Top priority in OEM activity is

to reduce operating costs and

improve operating efficiency .

OEMs need constant innovation

and efficiency improvement to

keep costs maintained.

• Getting the right costs and

converting these into right

pricing and margins is very

important. Companies chose

China for manufacturing due to

the low costs of manufacturing

that it offered. If India can

manufacture at better costs than

China, only then is there merit in

manufacturing in the country.

• Unless and until component

manufacturing shifts to India there

will be no breakthrough in the

industry, as there will be no cost

benefit.

• Companies has seen a sharp

increase in the waiting period for

availability of containers for critical

components such as compressors

or microprocessors, even after

paying 2-3 times more than the

actual costs.

Inputs from industry experts


In the last 2-3 months, several

companies have made

announcements in line with their

vision of making India a global hub

for electronics. The excitement in

this sector is still intact, and the

companies are aggressively targeting

increased localization in the country.

• Samsung Electronics: Is likely

to apply for the Rs 121.95bn

PLI for telecom gear and other

equipment. The company has tied

up with Reliance Jio for the supply

of telecom gear from its factory

coming up in Uttar Pradesh. The

investment entailed within the

scheme will be Rs 1bn towards

machinery and setting up of

production lines.

• Xiaomi India: Has deferred

its plans to export to other

countries due to a huge spurt in

domestic demand. The company

is looking to take advantage of

the PLI program to scale up its

manufacturing capabilities, as it

has been unable to fulfil the rising

domestic demand. Xiaomi has

also tied up with BYD and DBG

for smartphones and Radiant will

help augment the capacity of

smart TVs in India.

• Foxconn India: Its country head

is very bullish on India, as he

expects local manufacturing and

product designing in the country

to increase substantially, to meet

the goal of becoming a US$

400bn electronics manufacturing

industry by 2025. He expects

exports and increased domestic

consumption to fuel growth.

• Apple: It announced plans to

manufacture and assemble iPads

in India and is expected to take

benefits of the PLI scheme for

laptops, notebooks, and servers.

Apple has been lobbying for a

bigger budgetary outlay of Rs

200bn to scale up manufacturing

and has been pushing for this

at a time when Wistron is just

resuming production at its south

India plant.

• Tata Sons: Recently announced

an MoU with the Tamil Nadu

government to set up a facility

for manufacturing mobile

components. The company is

keen to invest Rs 46.84bn for its

new plant in Krishnagiri.

• Panasonic: Is betting big on

India by ensuring 90-100% of

each of its products sold in India

are locally built. The company is

already exporting ACs and some

other products, and plans to

double its RACs business in the

next three years. The company

is looking to collaborate with

component manufacturers for

parts such as motors, aluminium,

and compressors.

• MeitY has recently invited

expressions of interest by

companies who wish to set up a

display fabrication unit in India.

Displays account for over 25% of

the BoM in case of smartphones

and over 50% in the case of LCD/

LED TV’s. India’s panel market

is expected to grow from $7bn

presently to $15bn by 2025 while

current requirements are met

mostly through exports.

• Xiaomi has pledged Rs 1bn to

expand its offline retail presence.

The company aims to double

its exclusive store count from

3000 currently to 6000+ in the

next 2 years, generating direct

employment for 10,000 people in

its offline retail channel.

• Samsung Electronics is the

only company among 16 that

has surpassed both investment

and output targets under the

PLI scheme for handsets and

Capex is the buzz on the ground


The Government of India has started inviting applications for the second round of large-scale electronics manufacturing under PLI with a focus on electronics components such as motherboards and semiconductor devices among others. The second round has expanded the window for up to 30 eligible companies and the new guidelines have identified components like transistors, diodes, resistors, capacitors, PCBs, and ATMP

components this year.

• Apple is looking to expand its

retail presence in India on the back

of strong demand. The company

has already announced 7 new

store openings across North and

West India. Apple sold nearly

2.8mn iPhones in 2020, a growth

rate of 93% despite nationwide

lockdowns.

• India is offering more than $1bn

in cash to each semiconductor

company that sets up

manufacturing units in the

country as it seeks to build on its

smartphone assembly industry and

strengthen its electronics supply

chain.

• The worldwide shortage of

components has made it

difficult for companies to meet

output targets set by the Indian

government under its new PLI

scheme. Foxconn expects the

component shortage to continue

till mid-2022.

• Apple and Samsung are expanding

their production of mobile phones

from their Indian plants. Buoyed

by the surge in interest from global

manufacturers, the government

is also planning PLI for wearable

devices such as smart watches.

• Government of India has approved

the PLI scheme for LED lights and

AC’s with a budgetary outlay of Rs

62.38bn.

• The new PLI scheme for AC’s may

have long term potential to boost

the local component ecosystem in

the country as the manufacturers

will receive 4-6% incentive on

incremental production, only

if they add value by growing

component production. Mere

assembly of finished goods will not

be incentivized.

• Mobile manufacturers shortlisted

under PLI invested Rs 13bn and

produced goods worth Rs350bn in

Q3FY21.

• Electronic manufacturers such

as HP, Dell, Wistron, Foxconn

and Samsung have requested

the government to revise the

targets and extend the timelines

in the upcoming PLI scheme for

hardware, to avoid the situation

mobile phone manufacturers found

themselves in, where only one of

the 16 companies achieved the

targets for FY21.

• Nineteen companies including

Dell, Foxconn, Dixon Technologies,

Lava, and Micromax have applied

under the PLI scheme for IT

hardware to avail incentives.

Domestic value addition in IT

hardware is expected to rise from

5-12% currently to 16-35% in the

next 4 years.

• The TV prices are expected to rise

by 3-5% by October 2021, as the

government is planning to hike

customs duty on open cell panels.

The plan is to increase the import

duty gradually to 10-12%, which

is currently at 5%, over the next 3

years.

• The government has come out

with EOIs to incentivise setting

up of display fabrication units in

India. Display FAB manufacturing

requires an investment of Rs 750bn

over 2-3 years. The government

expects the Indian display panel

market to grow from US$ 7bn

presently to US$ 15bn by 2025.


PRODUCTS

Lower penetration and a large domestic market = huge growthIncreasing share of outsourcing and surplus capacity will make India export-ready

India’s large population base and favourable demographic

profile (more than 50% is below 25 years of age, and more

than 65% is below 35) makes the country an attractive

investment destination for foreign capital. Aware of its

advantages over other countries, the Government of

India has taken several initiatives to make India a global

manufacturing destination. India’s per capita income is

significantly low compared to other nations; thereby,

Indian consumers spend more towards basic needs than

on premium luxury products. In India’s consumer-durables

market, the share of companies with more mass-category

products with wide and deep distribution reach (greater rural

penetration) is higher.

Domestic manufacturing of mass-segment products is

more viable for companies, as these offer lower risk and

higher scale than premium- and mid-premium products.

Contract manufacturers have a higher share of mass-

segment products and low share of premium luxury

products. Companies majorly outsource production of

semi-automatic washing machines while they manufacture

fully-automatic machines in-house. However, few companies

have started outsourcing even fully automatic machines, as

Indian contract manufacturers are scaling up and up-skilling

their manufacturing capabilities. With a growing affluent

class, and increasing disposable income of India’s middle-

income group, the trend for high-end premium products

is visible, but those products are mostly imported – such

as dishwashers, dryers, side by side refrigerators – as

completely built units (CBUs). However, because of rising

import duty, uncertainty in the cost structure, and incentives

by the government, domestic manufacturing will increase.

Expect domestic value addition to increase across consumer electronics

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ACs: To see higher localization and rapid growth due to lower penetrationDespite the pandemic, which led to lockdowns, and the

economic slowdown in 2019-20, it was a good time for the

air-conditioning industry. India’s air-conditioning market

in FY20 was an estimated Rs 175bn, of which central air-

conditioning, including central plants, packaged and

ducted systems, and VRFs was c.Rs 32.5bn; other ancillary

equipment was c.Rs 30.5bn, and RACs was the highest

segment at Rs 112bn.

Demand for ACs is growing at 15-20% annually. A tropical

climate, large population, increasing discretionary income,

low penetration, reduction in operating cost, easy finance,

and rising aspirations of millions of households (to own

room air conditioners) are all factors driving demand for

ACs in India. It remains very difficult for such a large tropical

population to upgrade their lifestyle without air conditioners

– therefore, in anticipation of the expected rise in demand,

India remains a crucial market for the AC industry and global

AC companies. Rapid urbanization and a growing population

have created demand for sustainable, clean, and energy

efficient cooling solutions in India.

Demand scenario for ACs

A major chunk of the demand for air cooling solutions comes

from emerging populous economies such as India, China,

and Indonesia. These three are predicted to account for half

Growth of India’s AC industry

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of the global air-cooling demand by 2050. From roughly

8% of households air conditioned in March 2018, it is likely

to rise to 50% by 2050. Better data collection on cooling

needs across different sections of the society, urban and rural

areas, commercial and residential areas will lead to more

reliable estimates of cooling requirements, energy demand

projections, and appropriate technical solutions. With the

right steps, in the coming decade, it is possible that India will

become home to the most efficient air-cooling technologies

deployed at scale.

AC penetration in India

AC penetration in India is still low at around 5% and

consumers no longer view RACs are as luxury products

entirely but more as necessities. Due to the scorching

summers, demand comes from not only metros, but also

tier-2 and 3 cities, where heightened economic activity

has created affordability. Additionally, energy-efficient

norms have helped cut operating costs of ACs, and easy

financing has supported demand. Newer product features

and technological advancement in RACs have created a

replacement demand for products, with people upgrading

ACs every seven odd years. However, the Indian market

remains sub-par; global penetration is close to 30%. This

provides sufficient headroom for growth. Market penetration

should improve with an increase in rural penetration and

increasing affordability.


China’s penetration of RACs has gone up to 100% in 2017

from 54% in 2008, a significant growth rate compared to

other home appliances. The potential for RACs in India is

huge; should see substantial increases in the coming years

due to relatively lower penetration.

Energy-efficient norms have helped cut operating costs of ACs, and easy financing has supported demand

China domestic consumption at 100% penetration is 60-65mn units and India’s domestic consumption at 5% penetration level is 7mn

AC penetration world-wide

Developments in urban spaces has led to reduced greenery

and an increase in dark roofs, which contributes to the ‘urban

heat island’ effect, thus raising temperatures around the

globe. This has contributed to RACs’ demand. Increasing

customer awareness about the benefits of efficient RACs has

resulted in a manufacturing shift to split ACs from window

ACs.

AC industry overview amid the pandemic

The industry achieved normalised inventory levels on

sustained retail and OEM demand between October to

December 2020. Demand in metros and tier-1 cities showed

resilience, while uptick in demand for ACs continued from

tier-2 and tier-3 cities. Import bans placed on refrigerants

by the government created a plethora of opportunities

for domestic manufacturers. Over Rs 400bn of RACs

were imported into India (1.5-2mn units) of which 70-75%

consisted of CBUs (completely built units) with refrigerants,

and the remaining were IDUs (indoor units). The import ban

will boost domestic manufacturing of CBUs and components

India’s per-capita consumption for cooling is 69Kwh, below the world’s average of 272Kwh

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RAC remains under-penetrated in rural households

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for RACs in the country. The pandemic has led to the

complete disruption in brick-and-mortar store sales, as the

customers are increasingly wary of touching anything; this

has provided a boost to e-commerce sales, with an ever-

increasing number of purchases being made online.

The pandemic has caused a significant increase in demand

for consumer appliances, especially RACs. The ratio of RACs

per household was 1, which has increased due to social

distancing and work-from-home. There has been a significant

demand for branded and high-quality products which seems

sustainable. Rural areas have led the demand surge for

consumer appliances due to relatively low penetration and

increasing discretionary incomes.

Government’s initiatives for increasing local manufacturing in ACs

The ease in import availability has kept the manufacturing

of RACs in India at low levels. In RACs localisation is around

30% as compressors are imported.

The Government of India introduced various schemes and

duties to increase domestic value addition in air conditioning.

Currently, domestic value addition in room air conditioners is

c.25%, which, according to checks, will reach 75% over the

next 5-7 years.

Urban households with RACs to surpass those without by 2037-38

Rural and urban to see sharp growth in AC stocks in the next 6-7 years

An urban heat island occurs when a metropolitan city experiences much warmer temperatures than nearby rural areas. The difference between urban and rural areas has to do with how well surfaces in each environment absorb and hold heat

Bill of material break-up of RACs

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Split AC imports in India

Imports of compressors (AC+Ref)

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Ban on imports of refrigerant or gas-filled ACs

GoI banned completely built air conditioner units or

refrigerants – to boost domestic manufacturing and prevent

Chinese companies from disrupting the local markets

by taking business away from local players. This move is

consistent with the government’s self-reliance vision and

should help India to gain a greater share of the global AC

market and create additional jobs. Domestic companies

have cheered this move, and expect it to significantly

increase domestic production. Companies such as GMCC,

Highly and Hitachi are dedicated to making investments in

manufacturing of motors and compressors to further reduce

import dependency.

Currently, India imports Rs 30bn worth of ACs, 30% of the

total market. Of this, 75-80% are refrigerant filled CBU/ODU

and the balance are IDU units without refrigerants. The top-5

brands make up 40-50% of the total 2mn CBU units imported

into India. The ban on refrigerants should increase the share

of outsourcing in India, which is currently at 38-40%.

Out of the 6mn ACs in India, in 2019, c.1mn ACs had locally manufactured compressors. Component manufacturing is still lacking and needs to pick up to really boost manufacturing in India. Component manufacturing requires larger investments and incentives

Players like Amber Enterprises, PG Electroplast, and Mirc Electronics have put up lines for gas charging. As India scales up its domestic manufacturing, the industry expects imports to come down to 500,000-600,000 units from 1.5-2mn units

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Increase in BCD on compressors and motors

GoI increased customs duty on imports of compressors for

ACs – to 15% from 12.5%, and AC motors to 15% from 10%.

This move is likely to reduce import dependency and boost

manufacturing of ACs locally and to bring investments in

component manufacturing into India. Compressors make

up 25-30% of total AC costs. Investments in compressor

manufacturing can provide a much-needed fillip to AC


Sharp reduction in imports because ACs with refrigerants face import restrictions

PLI: The expenditure committee has approved the PLI scheme for ACs, which will extend an incentive of 4-6% to eligible companies on incremental sales of goods over five years to boost domestic manufacturing of ACs and components. Finished goods imports of RACs should reduce sharply, as the government imposed a ban on refrigerant-fill ACs. Also, higher duties and logistics costs are making importing costlier than local sourcing

Ex. factory -

China cost

(Rs 14,500-15,000)

20% import duty + sharp increase in

freight cost.

Gas charging + packing and unpacking

+ logistic = 1,000-1,500 additional

cost

India Landing cost:

(Rs 18,500-19,000)

Final cost to

the company

(Rs 20,000-21,000)

Domestic contract manufacturers are

offering at Rs 18,000-19,000

Price difference in sourcing from China vs. India

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AC/LED lighting PLI: The objective is to more than just

assemble in India

• Incentives are 4-6% on incremental sales for 5 years.

• Effective 1 April 2021.

• Open for applications for 6 months.

• Expected incremental investment from AC / LED PLI is Rs

79.2bn for an incremental production of Rs 1.68tn over

five years.

• The export opportunity due to AC / LED PLI is of

Rs 644bn over five years; it can create additional

employment of 100,000 jobs.

• Tax revenue likely at Rs 113bn in direct taxes and Rs

380bn through GST over the next five years.

PLI highlights Benefits

Incentives for ACs & LED 4-6% on incremental sales for 5 years

W.e. f 1/4/2021

Incremental investment Rs 79.2bn

Incremental production Rs 1.7tn

Exports Rs 644bn

Incremental employment 1lakh jobs

Direct tax revenue Rs 113bn

GST Rs 380bn

Production-linked incentives scheme’s benefits over the next five years

The exports opportunity due to AC / LED PLI is of Rs 644bn over five year


The cabinet has recently approved the PLI scheme for room

air conditioners. The scheme will have long term potential

to boost the local component ecosystem in India. The

manufacturers will receive 4-6% incentive on incremental

production, only if they add value by growing component

production. The selection of companies for the scheme shall

be done, so as to incentivise manufacturing of components

or sub-assemblies which are not manufactured in India

presently with sufficient capacity. “Mere assembly of finished

goods shall not be incentivised”, says the government. This

scheme is expected to help India in growing the local AC

manufacturing base and make India more competitive in the

global market.

Currently, in the Rs 180bn local AC market, 70% of the

cost material used in assembly is imported. Key parts like

compressors, variable speed motors in IDU’s, and high

quality copper pipes, among others, are imported. Please

click here for our recent report on PLI.

Source: DPIIT, Ministry of Commerce and Industry, PhillipCapital India Research

Note:AC: * High Value Intermediates or Low Value intermediates or sub-assemblies or a combination thereof.**Aluminum Foil, Cu tube, Compressor.***PCB Assembly for Controllers, BLDC Motors, Service Valves for ACs, Cross Flow Fans and other components.

PLI Scheme: Details over the next five years

Segment Large Investment Normal Investment

% of BOM Total Invest-

ment (Rs mn) -A

Total Revenue

(Rs mn) -B

Total Incen-

tive (Rs mn) -C

Avg. Incen-

tive (%)

Invest-ment/In-

centive (x) (A/C)

Sales/As-set (x)

Total Invest-

ment (Rs mn)

Total Revenue

(Rs mn)

Total Incen-

tive (Rs mn)

Avg. Incen-

tive (%)

Invest-ment/In-

centive (x) (A/C)

Sales/As-set (x)

AC

ACs (Components) 6,000 97,500 4,800 4.9% 1.3 3.82 3,000 41,250 1,988 4.8% 1.5 3.67

ACs High Value intermediates

40%-50% 4,000 53,750 2,575 4.8% 1.6 3.64 2,500 37,500 1,825 4.9% 1.4 3.75

ACs Lower value intermediates

15% - 20% 1,000 15,000 730 4.9% 1.4 3.75 500 7,500 365 4.9% 1.4 3.75

http://backoffice.phillipcapital.in/Backoffice/Researchfiles/PC_-__Consumer_Electricals_Update_-_April_2021_20210419091158.pdf


PLI Segment PC: est. no of Players each investment

segment*

Incentive

Large Invest-ment

Normal Invest-ment

Total

ACs (Components) 4 4,800 1,988 6,788

High Value intermediates of Acs 3 2,575 1,825 4,400

Lower value intermediates of Acs 9 730 365 1,095

Actual Capex Required Product Segment % of BOM Capex (Rs mn)

ACs (Components) Sub-assemblies 20% 1500-2000

High Value intermediates of Acs Aluminium Foil 5-10% 5,000

Copper Tube 12-15% 5,000-6,000

Compressor 22-25% 6,000

Lower value intermediates of Acs PCB Assembly for Controllers 15-18% 500

BLDC Motors 8-10% 1000-1500

Service Valves for Acs 3%* 500

Cross Flow Fans and other components 2%* 500

This PLI could receive c.20+ applications. If all segments receive applications, more applicants would be in lower-value intermediates

Average capex in different product segments of AC

Source: PhillipCapital estimates



Rs/Unit* Bill of Material Imported RM

Copper Aluminium Compressor PCBs Total % of Total BOM

Fixed Speed 14,000 2500 1100 3750 n.a. 7350 53%

Invertor 17,000 2500 1100 3750 3000 10350 61%

India has higher raw material import dependency at 60%; expected to come down by c.20% over 2-3 years

In high value goods, the industry expects. players such as GMCC, Highly, Daikin to apply for compressors; Hindalco and Mettube could apply for aluminium and copper


Major raw-material sourcing countries are China (majority share) Thailand, and Malaysia

Manufacturers are hedging their bets through India

RAC companies have been setting up manufacturing

facilities in India due to increasing duties and a recent ban

on the import of refrigerant or gas-fill ACs. China, which

had the lowest manufacturing costs, has seen costs rising

due to supply-chain issues, logistics costs, rising wages,

and increase in duties. Therefore, manufacturers have been

hedging their bets through India. Global RAC companies

now prefer India for exports and domestic demand. Local

manufacturing through OEMs/ODMs or in-house has led

to competitiveness. Branded companies are trying to find

the right proportion between manufacturing in house and

through contract manufacturers.

Historically, capacity utilization for RACs has been at c.60%/

lower with dependency on imports for addressing the

remaining demand. As the need for localization grows

stronger, players will try full-fledged manufacturing (vs

assembly). Imports are seen declining, as local manufacturers

and OEMs/ODMs ramp up capacities. Currently, the total

AC industry size is c.6.5-7.0mn units, of which the industry

imported c.2m units in FY20. Total installed capacity is

sufficient to make c.10mn units. With the government’s push

for domestic manufacturing and attractive schemes like PLI,

more capacities will be added in component manufacturing

and assembly. Total capacities will increase to c.12-15mn

units.

Manufacturers have been hedging their bets through India. Global RAC companies now prefer India for exports and domestic demand

In the past, contract manufacturing for air conditioners was limited to 5-6 players; now the number has almost doubled to 9-10

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Companies Units in Lac.

Sales Total

Win-dow

ACSplit

AC

In-House - Production Out-Sourced

Installed Capacity

Planned Capaci-ty Expansion#

Total Expected production*

Expected Out-Sourcing

IDU ODUs W -AC IDU ODUs IDU ODUs IDU ODUs IDU ODUs IDU ODUs

Brands

Voltas 12-15 1.1 11.5 - 10.0 1.1. 11.0 - - 12.0 6.0 6.0 4.2 14.2 12.8 -

LG 7.0 0.4 6.6 10.0 10.0 0.4 - - 18.0 18.0 - - 10.0 10.0 - -

Blue Star 6.0 1.1 4.9 3.9 2.9 0.3 1.0 1.0 4.5 4.5 6.0 6.0 8.1 7.1 - -

Daikin AC 8.0 0.6 7.4 6.4 6.4 0.6 1.0 1.0 12.0 12.0 6.0 6.0 10.6 10.6 - -

Johnson Con-trols- Hitachi

7.0 0.8 6.2 7.0 7.0 0.8 - - 10.0 10.0 - - 7.0 7.0 - -

Lloyd 6.0 0.7 5.3 6.0 6.0 - - - 12.0 12.0 6.0 6.0 10.2 10.2 - -

Carrier Midea 5.0 0.6 4.4 - 4.4 - 4.4 - - 12.0 - - - 4.4 6.0 -

Samsung 2.0 0.3 1.7 1.7 1.7 - - - 6.0 6.0 6.0 6.0 5.9 5.9 - -

Panasonic 3.5 0.2 3.3 2.1 2.1 0.2 1.2 1.2 3.0 3.0 - - 2.1 2.1 2.1 2.1

Godrej Appliances

4.0 0.4 3.6 1.1 1.1 0.4 2.5 2.5 3.0 3.0 - - 2.6 2.6 1.0 1.0

Others 8.5 0.8 7.7 1.0 1.0 1.0 1.0 9.2 9.2

Total 70.0 7.0 62.6 68.5 92.5 30 30 61.7 75.1 31.1 12.3

ACs: India is ready for domestic manufacturing; total installed capacity of 6.9mn units in IDUs and 9.3mn in ODUs. Now brands will be going slow on assembly capex, focusing more on components

ACs: Total production from contract manufacturers to reach 5.4mn units in IDUs and 4.6mn units in ODUs

Source: Channel check, Industry, PhillipCapital research# Capacity expansion over the next 2-3 years

#Capacity expansion in 2-3 years. Source: Industry, *PhillipCapital Research

Over the next 2-3 years, India may see capacity addition in components. Small and new OEMs will apply under lower value intermediates in PLI

Companies Units in Lac.

Installed Capacity Planned Capacity Expansion# Total Expected production*

IDU ODUs IDU ODUs IDU ODUs

Contract Manufacturers

IFB Industries 4.2 4.2 6.0 6.0 7.1 7.1

Amber Enterprises 22.8 22.8 10.0 10.0 23.0 23.0

PG Electroplast 6.0 6.0 6.0 - 8.4 4.2

ePack Durables Solutions 6.5 6.5 6.0 8.7 4.5

Subros 4.0 4.0 2.8 2.8

And others include ABAJ, Mirc, Panasonic, etc 6.0 6.0 4.2 4.2

Total 43.5 43.5 34.0 22.0 54.2 45.8


• The capacity expansion

announced by branded

companies is not entirely through

the PLI program, but also to cater

to the high demand witnessed

across consumer durables.

• Companies that have been

announcing fresh investments in

India for manufacturing are more

focused on manufacturing for

their own brands.

• Demand across product segments

continues to be so strong that

despite the capacity expansion

measures taken by several

companies, dependence on

contract manufacturers may not

reduce any time soon.

• The Government of India has kept

a strict control on FDI into India

by neighbouring countries. This is

to not lose control of operations

to overseas companies. Despite

this, excitement in the consumer

electronics sector is palpable, and

investments have been increasing

month on month, which shows

that demand is robust and growth

prospects are favourable.

• Any company that is looking to

be a significant player in the AC

industry, must have a full focus on

the HVAC range of products.

• ACs manufactured in India are

comparable to those in any other

country in terms of product quality

and efficiency; in terms of IoT-

based technology, China has the

edge.

• Installed capacity in

manufacturing in India is majorly

done by multinational companies

and Amber Enterprises.

• 2019 was a great year for the

AC industry due to scorching

summers; the industry grew by 10-

15% reaching the size of 7.5-8mn

units in a year.

• Daikin, which was more premium-

focused in the past decade, has

been targeting the mass market

aggressively with a vision of

gaining a larger piece of the

mass-market globally.

• Inverter ACs were 15% of the

high-wall category in the past few

decades, and have jumped to

50% at present, mainly driven by

regulations.

• The entire investment in the

AC manufacturing capacity has

been done by multinational

corporations, with domestic

companies missing this altogether.

• Voltas is known to be able to

source products locally or from

overseas at the best possible

prices, which is one of its core

strengths.

• China’s market is roughly 70-

80mn units, while India (the

second largest) is 7-8mn, which

shows huge potential for the AC

business.

Chat with industry experts

Increasing focus on exports

Over the next 2-3 years, India could have surplus capacity in

ACs for the domestic market, which will be used for global

demand. India’s RAC exports are currently insignificant

compared to China’s total RAC exports of c.65mn units.

Many global branded companies such as Hitachi, Daikin,

Haier, Carrier Midea, Mitsubishi, Panasonic, and Toshiba, with

strong global distribution and product knowhow, are getting

into agreements with Indian ODMs/OEMs for manufacturing

– as the country is seen as an exports source for many

countries in the Middle East, South Asia, and Africa. The

trend should expand domestic manufacturing capabilities.

Domestic branded companies such as Lloyd are also

talking about white-label exports. PLI focus on component

manufacturing, this will add in increasing exports.

Many global branded companies such as Hitachi, Daikin, Haier, Carrier Midea, Mitsubishi, Panasonic, and Toshiba, with strong global distribution and product knowhow, are getting into agreements with Indian ODMs/OEMs for manufacturing


Exports trend of ACs

Global exports market, China has the biggest share

India gaining share in the exports market

Countries such as South Korea, US, and Japan have

already shown interest in shifting their production facilities

to India. Vietnam, Thailand, and Indonesia are constantly

competing with India for a piece of the global supply chain,

but India ranks higher than its competitors in each of the

important parameters in the GCI (Global Competitive

Index). The country’s large domestic market provides not

just the advantage of cheaper exports, but would also allow

companies to benefit from domestic consumption.

India is working towards an enabling environment for

manufacturing for the world

India’s exports are likely to contribute to c.8% of the total

global consumption. GoI has taken certain steps that

directly/indirectly support AC manufacturers in exporting

– from lowering corporate tax to 17% and looking for an

area of 461,589 hectares across the country for foreign

manufacturing – India is working towards an enabling

environment for manufacturing for the world.

Here are some ways how:

• The country is committed to making investments worth

US$ 1.4tn in 2021-2025 to improve last-mile connectivity,

which will bring transportation time to hours from days.

• To achieve effective integration, India is developing DFCs

(Dedicated Freight Corridors).

• It is likely to be home to a billion digital users by 2028.

• The country also has a domestic advantage over China

and many other economies at the average population

age is 28.4 years (China’s is 38.4 years).

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Why do AC companies outsource?

• Outsourcing allows companies to focus on differentiation,

marketing, innovation, and distribution.

• Partnering with ODMs and OEMs for lowering logistics

and warehousing costs.

• There is a substantial reduction in working capital cycles.

• Flexibility in offering multiple RAC models with a quick

turnaround time.

• Economies of scale – another advantage provided by

OEM/ODM players; leading companies will partner with

these players for design, manufacturing, and reverse-

logistics requirements.

• Innovation as a function to enhance productivity

and profitability is propelling the consumer durables

(branded) companies to embrace the services of OEM/

ODM players.

JCHAC imports around 40% of its ACs, of which 50% are China-sourced. It will focus on cutting down imports by half over the next one year (FY22) and double its exports to c.50,000 units (from the present c.25,000) to the Middle East and Africa

OEMs dominate outsourced manufacturing, ODMs emerge well

• ODMs provides benefits of faster product development

and design support.

• RAC companies save on R&D costs by partnering with

ODM players.

• Newer market participants find ODMs an attractive

option for faster penetration.

• OEM collaboration is more transactional while ODM

collaboration is more strategic.

• ODMs gain the confidence of consumer durables

companies, thereby acquiring a higher wallet share

Way forward for air conditioner companies in India

Not only could India be the largest growth market for air

conditioner companies, it is likely to become the largest

in the world. GoI should develop a sustainable cooling-

challenge program in partnership with the private sector to

create meaningful air-cooling solutions that would deliver

massive reductions in cooling wastage. This, combined with

Make in India type of incentives would not only create jobs,

but also give a much-needed boost to the manufacturing

sector, and thus, a boost to the Indian economy. Also, with

PLI and higher focus on increasing value addition in India,

the country can become an exports hub for ACs. Companies

focussing on exports will provide a huge delta, as this is

a huge opportunity. In terms of pricing, with PLI coming

in, companies will increase capacity, and to achieve the

threshold revenue, they will pass on incentives to consumers,

which will put realisations under pressure. The recent

government notification approving PLI scheme for ACs will

help in creating a component ecosystem in India. Local value

addition is expected to go up from current 25% to 75% in

the coming years with critical components coming in India.

Countries Export markets

Johnson control - Hitachi

UAE, Qatar, Oman, Bahrain, Iraq, Kuwait, Saudi Arabia

Daikin Air-condition-ing

Middle East, SAARC, East Africa, Bangladesh, Nepal, Sri Lanka

Voltas Middle East, South East Asia, and Africa

Blue Star Middle East, SAARC, Africa, and ASEAN markets

LG India Middle East, Africa

Lloyd Exploring market for exports

Countries that have an export presence

Source: Company, PhillipCapital Research


“To make the AC industry reach Rs 1tn from the current size of Rs 160bn, 35% of industry demand

should be coming out of exports, and the remaining from domestic consumption. The first objective is to

manufacture, not assemble in India, as currently a lot of product components still come from elsewhere.

Before the ban on import of ACs with refrigerants, 1.5mn units of ACs were coming from elsewhere,

which is almost 30% of the total ACs sold in the country, whereas 70% were getting produced in the

country. The second objective is to take the current value addition of 25% – to 75% in the next five

years, and backward integrate. The market size in India for air conditioners is just above 7.5mn units.

China is 120mn units and out of this, it exports 50mn units. It is the responsibility of multinational

companies to ensure that they establish the global supply chain footprint in the country. And that is

Panasonic’s objective too – to make India an exports destination.”

– Mr Manish Sharma, President and CEO, Panasonic India, and Chairperson,

FICCI Electronics and White Goods Manufacturing Committee.

Source: Media reports

Steps towards cleaner technologies

A focus on clean and energy-efficient solutions will not only save the customers’

money, but also reduce overall energy consumption and emit less carbon dioxide

over products’ lifetimes. ICAP (India cooling action plan) highlights the importance

of an accelerated HFC (hydro-fluorocarbon) phasedown process, and further

development of cooling technologies to tackle the rise in demand. The current

range of high-efficiency ACs are either unaffordable to the Indian consumer, or

their benefits are unknown to most. There is also a need for a systematic scaling

down of HFC usage in a way that best suits India’s economic conditions. Policy

reforms should ideally focus on controlling the use of refrigerants with high GWP

and promote the use of natural refrigerants.

The councils should amend building codes to ensure all new buildings are

designed such that a passive design is incorporated – passively cooled buildings

help reduce cooling loads and minimize peak-power requirements.


AC Industry received a set-back due

to the lockdown during the peak

season. But it showed resilience and

performed better than expected.

How is RAC demand shaping up

currently and what do you expect

from the upcoming season?

There is an air of optimism in the

market. All economic indicators

suggest a strong year ahead. For the

HVAC industry in particular, all reports

are pointing towards a strong season.

Summer has already set in in many

parts of the country, with the south and

central region seeing temperatures

rising in February, while the rest of the

country is warming up in March. We are

optimistic about consumer sentiments

and are anticipating a strong year.

There is a strong push from the

government towards domestic

manufacturing – Make-in-India

and Atmanirbhar Bharat. Do you

expect India to become self-reliant,

and be able to do significant value

addition in RACs over the next 3-5

years? What steps do you think the

industry and the government should

take in order to promote domestic

manufacturing?

While various RAC companies have

set up their manufacturing units

in India, the government is also

supporting domestic manufacturing.

Carrier Midea India has also shifted

its manufacturing base from Bawal,

Haryana, to SUPA, Maharashtra, last

year. This is one of the largest room air

conditioner factories in India spread

across 25 acres. The initial capacity

is 0.8mn air conditioners per year.

Phase two will take this capacity up

to 1.5mn. Carrier Midea’s predilection

for maintaining a local presence in

every aspect of its operations sets it

apart, and has been the company’s

focus for years. But it is particularly

applicable in the new facility in SUPA,

where some of the company’s suppliers

are also establishing new facilities to

streamline logistics and production

Carrier Midea India is a joint venture between Carrier and Midea Group Co. Ltd. While Carrier is a leading provider of heating, ventilating, air conditioning, and refrigeration solutions, the Midea group is a high-technology holding, specializing in HVAC, home appliances, robotics and automation, smart home and IoT, and smart logistics and components.

Carrier Midea India has manufacturing facilities in SUPA, Ahmednagar, and Maharashtra, and exclusive rights to manufacture and sell Carrier and Midea brand room air conditioners and Midea brand light commercial air conditioners in India. With offices in 21 cities across India, Carrier Midea India has a pan-India presence.

INTERVIEW – Mr Krishan Sachdev, Chairman, Carrier Midea India


for both sides of the supply chain.

Recently, the govt. has also announced

the production linked incentive (PLI)

scheme, which is aimed at boosting

domestic component manufacturing

and exports. The key to becoming

self-reliant for India is to promote

component manufacturing for items

such as compressors, controls, and

others. Capacity of AC assembly is very

high even at present.

Few global AC and AC component

giants have set up their

manufacturing units in India and

many global AC giants are viewing

India as an attractive manufacturing

destination, do you think in next few

years some part of the global AC

supply chain can shift to India?

Yes, with the setting up of more and

more RAC manufacturing units in

India, the global AC supply chain

should follow, and shift to India. For

e.g., GMCC, one of the world’s largest

manufacturer of compressors, has

already established its manufacturing

unit in SUPA, Maharashtra, and is

expected to start production later this

year.

What do you think are the major

challenges being faced by AC

industry currently in India and

the steps that need to be taken

to be competitive with the likes

of Vietnam, Taiwan, and other

competitors?

The AC industry in India is dependent

on other countries for key components

i.e. compressors, motors, PCB and

IGT Copper. Localization of key

components is missing as of now.

Carrier Midea India is also reaching out

to it’s suppliers to consider India as a

production hub. The second issue is

the higher cost of commodities in India

such as steel. There is also the issue of

components/SKD/units coming in duty-

free from some FTA countries.

What level of capacity addition do

you expect the industry to see over

the next 2-3 years? And with these

additions, how much would our total

domestic installed capacity for ACs

reach? Will the capacity be sufficient

to fulfil domestic demand, and by

any chance, could installed capacity

be in surplus?

The AC industry is expected to see

a CAGR of c.10% after it catches

back volume (from last year’s COVID

issues) significantly this year as per

our estimates. Although the installed

capacity is higher than the domestic

demand even today, the industry is

unable to make use of this capacity

because of the cost competitiveness

offered by other countries. In the

longer term, we should focus on

making local industry competitive

rather than using tariff and other

barriers to make imports uncompetitive

or difficult.

What kind of exports opportunity

exists in the AC segment, and any

steps in your opinion that could help

India take full benefit of the exports

opportunity?

The growth of the local market will

add scale to make India more exports

competitive. Countries with similar

weather conditions like Sri Lanka,

Nepal, Middle East, and African

countries need to be targeted for

export. Special support on exports

agreements will be helpful to take

the benefit; FTA’s with importing

economies will also support local

exports development.

India’s penetration in ACs is 5%

while China’s is above 100%. What

kind of realistic penetration level

can we expect in next 5-6 years,

once there is a ramp up in local

manufacturing of the necessary

components?

With the govt. encouraging local

manufacturing, we expect a gradual

increase to double digits in a span

of five years. The increase in AC

penetration also depends on per capita

income.

Traditional distribution channel is

being disrupted by e-commerce and

modern retail, which is providing

new and smaller players a channel

to enter the market. Can small

new players with their asset-light

business models, entering through

e-commerce and modern retail,

provide strong competition, and

do they have the potential to gain

decent market share?

As of now, the contribution of the

traditional retail/distribution channel

is more than 60% for RACs, while the

e-commerce contribution is under 10%,

though growing. With the impending

increase in the overall market for RACs,

there will be enough volumes to keep

all channels fully occupied. While

e-commerce may be an entry route

for new players, the real success will

probably depend on their presence in

all significant channel segments. But

it is too early to make any statement

about their market share.

Note: This interview was taken in March 2021


How is demand shaping as we are getting ready

for the upcoming season?

ACs have seen c.15% price increase in the last few

months due to commodity inflation. India is a price

sensitive country; demand could be impacted in the

short term due to these increases. This can be seen

in other consumer products too, where the price

increase have taken place.

AC imports have sharply reduced in the last

6-9 months over the corresponding period;

does it indicate India is on the path to become

Atmanirbhar soon?

Prohibition on imports of ACs with refrigerants, has

led to a reduction in imports; however, the import of

components hasn’t changed, rather it has increased.

The industry has shifted from importing completely

built units (CBUs) to importing components,

effective reduction in imports will be 15-20%.

India will become self-sufficient in the assembly

of ACs first, which will lead to 100% localization

of sheet metals, plastic injection moulding, and

gas charging. All 3 combined is 25% of total bill of

materials. Global companies are setting up their

plants for critical AC components, which will also

increase domestic value addition. At domestic value

addition of 25-30%, India needs to build a strong

component ecosystem to become Atmanirbhar;

until then, the industry will continue to import.

What about in other consumer durables products

such as refrigerators and washing machines – are

we self-reliant in these categories?

Semi-automatic washing machines and refrigerators

(direct cool and frost free till capacity of 300ltrs) are

all indigenized. Even compressors, fabrication, and

other key products all are made in India. Only few

components like glass door are imported.

How are you planning to scale? Do you have any

plans to set up any manufacturing unit?

Yes, we are planning to set up a manufacturing

unit – we will be manufacturing sheet metals, plastic

injection moulding, and gas charging along with

assembling of components.

Note: This interview was taken in March 2021

INTERVIEW – Mr Nipun Singhal, MD and CEO, Amstrad (OVOT Pvt. Ltd)

Amstrad is marketed by OVOT Pvt. Ltd, derived from the concept of One Vision One Team. It is a unique creation by channel partners and experienced industry veterans to give the best product, services, and prices on consumer electronics to Indian consumers. OVOT is head quartered in Pune, and its distribution network is spread across the country.


Mobile phones: Making India a global hub Mobile technologies and services contributed US$ 4.1tn

to the world GDP in 2019. As at June 2020, there were

8bn smartphone users globally, which are likely to reach

8.9bn by the end of 2025. The unique number of mobile

subscribers makes up around 81% of the world’s population.

Smartphones have become an everyday need for people of

all ages, cultures, and economic statuses. Rapid technology

advancements, increasingly available content, rising

discretionary incomes, and numerous use-cases have all

contributed to making this product an important everyday

lifestyle device.

Handset and component manufacturing in India

The annual production of mobile phones in India has grown

over five times – from 60mn units valued at Rs 189bn in

FY15 to 320mn units valued at Rs 2.25tn in FY20. Mobile

manufacturing in India started with Nokia, Samsung,

Motorola, LG, and Sony Ericsson in the mid-2000s and grew

steadily between 2008 and 2012, reaching over 155mn

handsets per annum. India exported nearly 70% of the

mobile phones it manufactured, valued at Rs 122bn as of

2012. However, due to a freeze on assets because of a tax

dispute, Nokia stopped production in 2014. As a result, the

component ecosystem that Nokia had built in India had to

shut down. In 2014, India’s production dipped to just 58mn

units, with marginal exports.

From SKD to CKD – progress

At present, India has significantly upped its mobile-phone

manufacturing capabilities, fuelled by constant policy

support from the government and a growing domestic

handset manufacturing market. Domestic manufacturing

of handsets and its components has emerged as one of

the flagship sectors of the “Make in India” initiative. The

implementation of the phased manufacturing plan (PMP) has

helped the sector move from Semi Knocked Down (SKD) to

Completely Knocked Down (CKD) level of manufacturing.

Top global handset manufacturers have set up rigorous

assembly operations in India but the component

manufacturing remains nascent. India still imports a

significant number of components and raw materials required

for the manufacturing of mobile phones, due to limited

Mobile phones production in India has seen 64% CAGR

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availability locally. However, the sector has seen an increasing

share of its imports to be SKDs or small components, rather

than completely built units (CBUs). This which signals a shift

consumption to manufacturing.

Currently, the manufacturing capabilities for mobile-

phone components such as gift boxes, APTP (assembly,

Factors that lead to cost reduction in mobile phone mfg. India Vietnam China

Cost of power 0% 1% 1%

Interest subvention on working capital 0% 1.5-2% 3-3.5%

Logistics 0% 0.50% 1%

Labour subsidy Negligible 0.50% 2%

Corporate income tax exemption/ reduction 0.73-0.95% 1.5-2% 2%

Subsidy for machinery and equipment Nil 0.20% 3%

R&D Subsidy 0.15% 0.4%-1% 3-3.5%

Exemption/reduction of land rental 0% 0.50% 0.60%

Incentive for supporting industry 0% 0.5-1% 0%

Production Linked Incentive scheme 4-6%* 0% 1to 2%

Total 5-7% 7-9% 17-18%

India’s disability vs. Vietnam and China in mobile-phone manufacturing; PLI is an attempt to fill the gap


Mobile phone key component share of bill of materials (BoM%)

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India still imports a significant number of components and raw materials required for the manufacturing of mobile phones, due to limited availability locally

programming, testing, and packaging), chargers, USB

cables, battery packs, chargers, die-cut parts, mechanics,

keypads, and PCB assembly already exist in India. These

sub-assemblies contribute around 67.5% to the BoM (bill of

materials) of an average-priced smartphone. Localisation at

the component level remains much lower when compared to

the sub-assembly level. Components such as PCBs, display

assemblies, image sensors, and camera modules contribute

significantly to the Bill of Materials of the handset and

India does not manufacture them, rather it imports these

components from countries such as China, Vietnam, USA,

South Korea, and Japan.


Global electronics giants are putting up manufacturing units for key components in India; Samsung Electronics has invested Rs 40bn for manufacturing of display units

Factors in favour of making India a global manufacturing hub for mobile phones

Mobile PLI

To boost domestic manufacturing of mobile phone and its

components, the government introduced production linked

incentives scheme for production of mobile phones under

Rs 15,000 and over Rs 15,000. It has approved a total 16

companies under the scheme. Key highlights of the PLI

scheme:

• Incentive: 4-6% PLI for five years.

• Outlay: Rs 409.95bn (US$ 5.5bn).

• Tenure: 5 years. Base year FY19-20. Incentives applicable

from 1 August 2020.

• Despite recent challenging times, mobile PLI will lead

to production worth Rs 350bn and investments worth Rs

130bn by applicant companies.

• Additional employment generation is 22,000 jobs.

• Domestic value addition in mobile phones is expected to

grow from 15-20% to 35-40%

Domestic value addition in mobile phones is expected to grow to 35-40% from 15-20%

Source: Industry, PhillipCapital estimates

Particular USD Bn

Global Market CAGR over Next 5 years 4%

India Market CAGR over Next 5 years 22%

India Market by FY25 (USD Bn) 80

India Exports CAGR over next 5 years 197%

India Exports by FY25 (USD Bn) 110

Targeted Production in FY25 (USD Bn) 190

Targeted Value Addition by FY25 34%

Industry expect strong exports with improvement in value addition


Company name CAPEX ( in Rs mn.)

State Type of CAPEX Date of Announcement

Samsung India 49150 Noida, Uttar Pradesh Samsung (South Korea)

Optiemus Electronics 2850 Sale of commercial property in Noida 2020

Samsung India 48250 NCR, Uttar Pradesh Mobile and IT display production unit 2020

Lava international 8000 2021

Pegatron corporation 11000 Chennai Leased 500,000 sq. feet of land 2021

Hon Hai Precision Industry Co Ltd 39000 Tamil Nadu Expanding manufacturing capacity 2021

Dixon Technologies 2500 South India Padget Electronics 2021

Intex Technologies 600 Technology software and IoT start-ups 2018

Micromax Informatics 6510 Consumer electronics 2020

Tata Electronics 46840 Krishnagiri, Tamil Nadu Plant for manufacturing mobile components 2018

Capex announced by companies: Capacity expansion will help to increase domestic value addition

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Source: meity.gov.in, media reports

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Domestic companies International companies

Electronic component companies

Lava Hon Hai Preci-sion Industry Co Ltd

AT&S

Bhagwati Products (Micromax)

Rising Star Ascent circuits

Padget Electronics Samsung Visicon

UTL Neolyncs (Kar-bonn)

Wistron Walsin

Optiemus Electronics

Pegatron

Sahasra ElectronicsNeoLync

Companies approved under PLI for mobile phone manufacturing

Mobile total India industry (Smart Phones c.160mn) (Features phones c.120mn units)

Working of Mobile PLI capex

Min/Threshold Max/Ceiling

Companies No of Cos.

Capex/ Com-pany (Over

3 years)

Revenue (per Com-

pany)

Total Revenue

Revenue/Capex (x)

Total Capex

Revenue (per Com-

pany)

Total Revenue

Capex/ Com-pany (Over 3

years)

Total Capex

Global Cos. 5 10,000 250,000 1,250,000 25 50000 500,000 2,500,000 20,000 100,000

Domestic Cos. 5 2,500 50000 250,000 20 12500 100,000 500,000 5,000 25,000

Component 6 1000 5000 30,000 5 6000 30000 180,000 6,000 36,000

Total 16 1,530,000 68,500 3,180,000 161,000

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estim

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Company name (Units mn) Current Capacity

Capacity Addition##

Sales Volumes

% Share

Brands

Samsung India 80-100 0 42.4 27%

MI 2.-3 1-2 48 30%

Oppo, Vivo & 1+ 40-60 20-30# 44 28%

Lava International 36 100 3.2 2%

Apple 3.2 2%

Others# 1-2 5 19.2 12%

Total 160-200 125-130 160 100%

OEM’s % Share**

Dixon Technologies* 3 15 3 8%

Bhagwati Products 10 5 0.9 7%

Optiemus Electronics# 18 3 0.5 9%

Hon Hai Precision Industry (Foxconn) 50 72 45 54%

Pegatron n.a. 5 0 2%

Wistron 2.5 2.4 2.5 2%

UTL Neolyncs (Karbonn)# 26.4 13.2 25 18%

Total 109.9 115.6 76.9 100%

% S

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Capa

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OEM

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Mar

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Mobile phone shipment data: Market share of major brands in India

Mobile phone exports monthly data: Exports reached pre-pandemic levels in Nov/Dec 2020

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Rising exports of mobile phones

Challenges faced by mobile and mobile component

manufacturers

Low value addition: Despite the presence of global handset

makers in India and a rise in domestic demand, the country

still does not manufacture high-value components such as

camera modules and display units. It manufactures only low-

value-added components such as batteries and chargers.

Fierce global competition: Many nations are fighting for

investments into their economies for the manufacturing of

high-value-added components for mobile handsets. There

are many entry barriers for new players who want to start

manufacturing in India.

Lack of an integrated supply chain: One of the major

barriers to indigenous manufacturing in the country is an

inadequate supply chain. Despite a large domestic market

and an enabling regulatory environment, the growth of this

sector is highly dependent on this factor.

Infrastructure and resource unavailability: Uninterrupted

supply of power, clean water, and infrastructure are

imperative for producing mobile handsets in India.

Financial setbacks: High-value-added components

(that India currently imports) require huge investments

to be produced locally, in terms of installation of large

manufacturing plants and purchase of costly machineries.

The ROCE is also generally lower due to lower productivity

and there is a dire need for financial incentives by the

government to raise the required funding from the private

sector.

Unavailability of skilled labour: India needs to focus on

up-skilling its labour if it wants to set up large manufacturing

plants and complex machineries. There is a huge gap

between the skills required for manufacturing of electronics

in India and other countries, which the country needs to

cover to become an exports hub.

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TVs: Looking at becoming a global manufacturing hub…

TVs: Industry overview

The colour televisions market in India was c.18mn sets

in 2020 – 12.5mn smart TVs, 3mn analog sets from the

organised market, and 2.5mn from the unorganized segment.

TV manufacturers faced difficulties and had huge inventories

stockpiled when the pandemic hit, leading to a total

washout in terms of sales. When the lockdown was gradually

lifted, work-from-home and school-from-home led to an

unprecedented increase in demand, with growth coming

from tier-3 and 4 cities. Households across the country were

inclined to upgrade their TV sets, as most of their time was

being spent at home.

This excess demand outstripped supply and the prices of

ICs (integrated circuits), panels, commodities, transportation,

and freight increased considerably. The squeeze in supply

led to rising prices throughout the sector. Increases in prices

of steel, copper, and aluminium, the re-imposition of basic

custom duty of 5% on open-cells (open-cell panels are

Domestic value addition in TVs is c. 15-20%, which will increase to 30% over the next two years

Open cell is a part of an TV panel without the back-light. India needs to manufacture open cells, which are 65-70% of Bill of Materials (BOM), to increase its domestic value addition. This would require high investments of Rs 8-10bn. TCL is putting up an open-cell facility in India

Smart TVs dominate the market with c.69% market share

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used in manufacturing LCD/LED screens for televisions),

and a spike in freight charges to c.Rs 320,000 per container

from c.Rs 65,000 – added to the disruption. Most brands

took price increases of more than 30%. The pandemic also

disrupted the launches of new TV technologies scheduled for

2020.

Currently, the Indian TV manufacturing industry largely

assembles TVs, with most of the high-value components

coming from Vietnam and China. To provide a fillip to

domestic manufacturing and to emerge as a global hub for

televisions, India needs to start producing open cells, among

other components that are crucial to produce TVs.


TV market share in India

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TVs: Market share

Samsung, LG, and Xiaomi hold a combined market share of

64%, with Samsung at the #1 position, and LG and Xiaomi

almost neck-to-neck in 2019. Sony slipped by quite a bit in

2019. Panasonic, Haier, and TCL have established a strong

foothold for themselves. The unorganized segment and

regional companies’ brands have also been gaining some

market share – from 10% in 2017 to touch 16.5% in 2019.

Some of the smaller TV players include Onida Electronics,

Wybor, Intex Technologies, Micromax Informatics, Mitashi,

Lloyd, Sharp, Sansui, Phillips, Veira Electronics, BPL, Sanyo,

T-series and some companies that have just forayed into

the Indian market are OnePlus, Motorola, Nokia, and Hero

Electronics.

Demand for TVs

Penetration for TVs has crossed more than 99mn homes

in rural India; it is no longer just an urban phenomenon.

Decreasing prices of TVs has created a replacement market

for TVs with an average replacement cycle of 5 years.

Increased innovation in this segment along with lower price

points has augmented the penetration of TVs across all

income groups in the country.

The exponential growth of internet connectivity across

the country, especially in tier 2 and 3 regions is another

contributor to demand as it gives more access to OTT

platforms to the tech-savvy generation. 2019 saw an increase

in demand for Korean and Chinese brands, with innovations

and newer product offerings in different price segments to

cater to the mass market. Gradually, with a drop in prices,

demand was seen shifting towards large screen premium

TVs. Sales from e-commerce segment have been gaining

traction, with companies gradually foraying into smart

televisions. Looking at the steep growth in demand, OnePlus

plans to leverage its position of being a leading mid-

premium mobile-phone company and brand to gain some

market share in the 18mn-units Indian TV industry. OnePlus

also plans to set up a production hub for global supply of

TVs, by manufacturing its televisions in India.

2019 saw an increase in demand for Korean and Chinese brands, with innovations and newer product offerings in different price segments to cater to the mass market


Dixon Technologies, market leader with 51% share

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Pre-covid prices of 32’’ TVs were at Rs 12,000 and due to a sharp increase in open-cell panels, prices have reached Rs 20,000

OEM market for TVs

The OEM market for colour televisions is estimated at

6.5mn sets in 2020, up 44% yoy. Few players such as Dixon

Technologies are expanding their production, and are all

geared up for higher numbers going forward. The Indian

OEM market in 2019 was pegged at 4.5mn sets. It witnessed

a 12% yoy rise in 2017, 22% in 2018, and a whopping 59%

rise in 2019. SVL and Dixon Technologies were the biggest

benefactors of this jump in production. Many companies had

shut their plants due to the imposition of BCD on open-cell

panels, which the government eventually revoked. However,

in the interim period, OEMs such as Dixon saw an upsurge

in orders. In November 2020, the government re-imposed

BCD on open-cell panels. We believe OEMs are set to

benefit again from the re-imposition of BCDs.

In case of supplies to Indian television makers, panel

suppliers preferred to go with large OEM players, and there

has been an increase in the trend of advance payments for

Panel suppliers preferred to go with large OEM players

Government initiatives like import duties and license will result in a third of imports being sourced from domestic contract manufacturers

Mirc Electronics (ONIDA) is increasing its capacity; its current capacity is 1mn units. Its key customers include BPL, Reliance and TCL

PG Electroplast, a contract manufacturer for ACs and washing machines, is also planning to manufacture TVs

supplies. The government has been supporting domestic

manufacturing by imposing tariff hikes, schemes, and

initiatives. GoI imposed import duties on many LCD sets in

July 2020, as part of the Aatmanirbhar campaign. Moreover,

the DGFT (Directorate General of Foreign Trade) has

mandated an import license for importing television sets.


Government intervention for the TV industry

Government initiatives are the key drivers that will drive

domestic electronics manufacturing in India. Production

Linked Incentive scheme (PLI), Scheme for Promotion

of Manufacturing of Electronics Components and Semi-

conductor (SPECS) and EMC 2.0 (Electronics Manufacturing

Cluster) are some of the initiatives that are making large-scale

domestic manufacturing of electronics attractive for investors.

• PLI includes semiconductor fab (fabrication) and display

fab.

• SPECS is aimed at helping eliminate the disability of

domestic manufacturing of electronic components and

semiconductors.

• EMC 2.0 is likely to strengthen the supply-chain

Mfg. Own brand Major Customers

Dixon Technologies NA Xiaomi, Panasonic, Reconnect, Koryo, Phillips, Croma, Sanyo, Intex Technologies, Akai and Lloyd

Hon Hai Precision Industry Co Ltd NA Sony

MEPL Wybor, Ego-Vision Akai, Panorama, Intex Technologies, HOM, Truvision, Abaj, Nextview, Hyundai, Dyanora, Blueberry, VG, and BPL

Noble Moulds Daenyx and Golf Haier and regional brands

SVL Group Suzlon, Suntek, SVL Kodak (online and offline) and Thomson (online)

Veira Electronics Iconic JVC, T-series, Noble, Abaj and Crown

Videotex International Daiwa, Telefunction and Shinco (only online)

T-series, Intex Technologies, Hyundai, Sansui, Haier and Lloyd.

Skyworth NA Panasonic (32”)

MIRC electronics Onida Reliance, BPL, TCL, others etc

List of leading TV contract manufacturers and their major customers

OEM volume for TVs in FY20 was up 44% yoy to 6.5mn sets

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responsiveness, decrease the time-to-market, consolidate

suppliers, and lower logistics cost.

• In July 2020, to promote domestic manufacturing, the

government imposed restrictions on imports of TVs.

Together, these schemes will help enable large-scale

electronics manufacturing, domestic supply chain of

components/state-of-the-art infrastructure, and common

facilities for large anchor units and their supply-chain

partners. The PLI outlay has provided incentives for setting

up new factories for home-grown TV manufacturers.

However, for such a large scheme to work, it needs the

centre and the states to be aligned in terms of vision. States

such as Maharashtra, Andhra Pradesh, Karnataka, Tamil

Nadu, Telangana, and Uttar Pradesh have provided support

in terms of capital and power subsidies, tax reimbursement,

and skilling.

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Recent ban on imports of CBUs of TVs and higher import duties on open cell will lead to

reduction in import

Strong demand resulted in supply shortages of open cell, impacting the volumes

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Company name CAPEX ( in Rs mn.)

State Comments Capacity Date of Announcement

Haier appliances 500 Noida, NCR TV plant 2019

Jaina Group 10,000 Manufacturing hub for Sansui brand products; will ex-port to other geographies, including neighbouring South East Asian markets. Capex is for the next three years.

2019

Dixon Technolo-gies

500 Tirupati Padget Electronics 2020

Thomson 10,000 Will invest in the next five years for home appliances. 2020

TCL 24,000 Capex for TV 2020

ABAJ 500 For manufacturing of 2.5mn TVs 2020

PG Electroplast 300 Pune TV plant AC: 0.9mn p.a. -IDU + 0.4mn

-ODU

2021

SPPL - Kodak TV 3,000 To increase the capacity 2021

Mirc Electronics 300 Maharashtra TV

TV assembly plants require a lower capex of Rs 300-350mn, but it is imperative to reach high utilisation levels

TV CBUs have seen a sharp reduction in imports due to restrictions

Source: Industry, PhillipCapital estimates


Massive capacity addition taking place

The government’s initiatives for increasing domestic value

addition have allowed domestic contract manufacturers

such as Dixon Technologies, PG Electroplast, MIRC, Kodak,

and ABAJ to increase manufacturing capacities. Over the

next two years, India will see a massive capacity addition

in LED TVs by companies (with own brands) and OEMs for

assembling. This aggressive capacity addition by brand-

name companies and OEMs will help in increasing exports

from India. However, value addition will remain a challenge

as India depends on imports for open cells.

The pandemic and TV prices

In FY20, LCD TV panels had a rollercoaster of a year, with

three inflection points in the H12020 and huge increases

in prices in the second half. Samsung, LG, and other TV

manufacturers’ announcements of shutting down their plants

Current capacity and additional capacity announced by TV makers

Company name Brands/OEM Current capacity (mn) Additional capacity announced

Production (mn)##

Samsung India Brand 0.5 0.45

LG Brand 2 1.8

Panasonic India Brand 0.5 0.45

Haier India Brand 1 Added 0.4

Onida Electronics/MIRC Brand 0.2 0.18

Total 4.2 3.28

Dixon technologies OEM 4.4 1.1 2.275

MEPL (Trader+Small Assem.) OEM 0.5 -1.0 0.6

SVL Group (Sunteck Vision) OEM 0.5 -1.0 0.375

Foxconn OEM 0.5 -1.0 0.45

Noble Moulds OEM 0.5 -1.0 0.05

Videotex International OEM 2 2 0.3

Veira Electronics OEM 1.2 0.2

Genus Electronics OEM 0.5 0.5

Onida Electronics OEM 1.2 1.2 0.4

Micromax (Bhagwati products) OEM 0.5 -1.0 0.5

Super Plastronics OEM 0.5-1 0.2

Beston Electronic OEM 0.5-1 0.2

ABAJ – ABZ OEM 1 0

TCL OEM 0 4-5

PG Electroplast OEM 0 0.5

Skyworth (Brand+OEM) New OEM 1.-2 3-4

Others OEM 0.45

Total 6.5

Total Domestic Manufacturing OEM + Brands 9.78

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PC

Estim

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Leading TV brands are reducing production of 32 inch and 43 inch TVs as it is unprofitable for them. Small players will continue to make smaller TVs while bigger brands will produce more high-end and premium TVs


(US, Europe, and China) partly contributed to an increase

in prices. The pandemic led to chaos and panicked price

reductions, as the whole world saw an eventual collapse in

demand, but then it surged due to stay-at-home orders and

lockdowns. From February 2020 to Q4FY21 prices for open

cell increased 2-3x.

TV exports from India

TV exports monthly data

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TV prices monthly trend

TV prices saw sharp rise in FY21

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Trade war and TV prices

Fear and uncertainty due to the trade war between the US

and China, and a much-anticipated tariff hike by the US in

the second half of 2019, pushed branded TV companies to

move panel orders to the first half of 2019. Fears that TV

prices would rise due to tariffs led to reduced panel demand

and increasing inventories. Panel prices also started falling.

By the end of FY19, supply outstripped demand. Fierce

competition led to massive reductions in panel prices,

pushing prices below even cash costs for some products.


Technology adding value

Mini LEDs

2021 is likely to be a good year for the mini-LED technology,

as it is introduced in multiple applications. It will compete

fiercely with OLED technology. Samsung has targeted 2mn

unit’s shipment of mini-LEDs in 2021. LG introduced its mini-

LED TVs at the CES (Consumer Electronics Show) in January

2021. TCL has been shipping LCDs with mini-LEDs and has

expanded its range with lower-priced models.

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Smart TVs volume grow – 4% CAGR over 2019-25

Smart TVs

The global unit shipments of smart TVs are likely to increase

from 209mn in 2019 to 267mn in 2025, a 4.1% CAGR. Falling

prices and the demand for next-generation features, such

as 4K and HDR continue to be the strongest drivers for TV

sales. Even as the price of high-end models continues to

soar as screen sizes and device sophistication at the high

end continues to grow, there is a falling disparity between

traditional and smart TV price points at the lower end of

the product lines. Manufacturers are trying to drive up

interest among content creators and consumers for the

next technological breakthrough after 4K, such as HDR and

quantum dots.

OLED technology

OLED is an important step towards the future of the

television industry. OLED sales should add 2mn units each

year, bringing the market close to 11.5mn units by 2023.

These currently make up a mere 1-2% of overall global

TV sales, but 30-34% of the premium segment. These

shipments were at 3.2mn units in 2019, and so far, remain

the exclusive domain of LG Display, one of the world’s

largest manufacturer and supplier of LCD, OLED, and flexible

displays, although new players have entered OLED in 2020,

and many more are likely to enter ahead. The price of an

OLED TV has dropped significantly over the years, and has

now become a viable option for more consumers.

64-inch trumps 55-inch for the first time

The global market for OLED TVs should reach US$ 18.6bn

by 2027, 16% CAGR over 2020-2027. It currently occupies

30-34% of the premium category global TV sales. These

TV shipments rose to 3.38mn units in 2020; 65-inch OLED

TVs were 41% of the global OLED TV market; 55-inch were

39%. For the first time, 65-inch shipments surpassed 55-inch

shipments, as people increasingly prefer larger screens in

their homes. Up until 2019, 55-inch made up 49% of the

annual OLED TV production, but in 2021, 65-inch is set to

reach 49% of total shipments (55-inch at 36%). Although

branded companies are setting ambitious targets for OLED

TV production, this segment might not have an entirely

optimistic demand outlook for high-end TVs. Aside from

pandemic-induced lockdowns that are hurting demand,

flexible pricing of QLEDs is a potential threat to OLEDs.

QLED TVs

Owing to its technology and cost advantages, QLED TVs

have grown 230% over 2019-20. Global shipments of these

were 5.83mn units in FY20 and even with the downturn, the

market for OLED products thrived on a flourishing stay-at-

home economy, which resulted in retail price cuts of more

than 20% for 65-inch QLEDs in the North American market,

creating a wave of replacement demand for TV sets.

Most QLED TVs have leveraged their existing LCD designs,

where the quantum dots are embedded within the filtering

For the first time, 65-inch shipments surpassed 55-inch shipments, as people increasingly prefer larger screens in their homes


layers comprising the stack. A few manufacturers are looking

at integration of QDs (quantum dots display) into OLED TVs

in a unique hybrid system that combines the flawless black

uniformity of OLEDs with the efficiency and vivid colours of

quantum dots.

Global OLED TV market share (size wise)

Indian TVs: Screen-wise market share

The 4K and 8K wave

Customers have been prioritising their purchase of

appliances; smartphones shipments are losing steam,

while TVs have seen their sales increase. This phenomenon

has given a boost to sales of 4K TVs, according to Onida

Electronics. The pandemic has impacted 4K sales in some

parts, as customers have been buying small non-4K TVs in

rural regions. Onida Electronics expects 800mn 4K-enabled

homes by 2024. While the number of 4K channels has been

growing, launches are delayed, in part due to the Tokyo

Olympics.

The 8K made its debut at CES 2019, but has made up a very

minor portion of the premium TV sales, as they come with

hefty price tags. These sets’ sales are likely to reach US$

5bn by 2021, with larger TV sets becoming a standard. Also,

sales of equipment related to the creation and production

of 8K content could generate hundreds of millions of dollars

globally in next 2-3 years.

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• For CY20, the industry size is c.12mn units.

The industry has seen a decline of 20-30%,

mainly because of COVID-19. India has

banned imports of LEDs (TVs). The industry

imports in the SKD format at present. In

CY19, it imported 7-8mn units as FG; industry

size was c.14mn units. Companies like Sony

and Samsung were primarily big importers at

c.3-4mn units.

• The bigger challenge currently is importing

open-cells for LEDs. The industry is seeing

a supply chain issue. Open-cell prices have

drastically increased. Last year’s 32” panel

open cell at c.US$ 32 now going for c.US$

96. This has resulted in a sharp increase

in LED prices. Majority of the sourcing for

open-cell is done from China; c.80% of

global supply. Prices have increased mainly

because of strong demand, and reduction

in capacity of open cells from 4.8bn to 4.5bn

units (as manufacturers are not making

money, because panel prices have gone

down sharply. Dependency on China for TVs

is very high as panels and IC manufacturing is

mostly done there.

• Companies like LG are shifting to OLED

technology. This is a premium product

(supply is not an issue), as it can source from

its plants in Vietnam, Korea, etc. But OLED

TV prices are very high; for e.g., a 55” TV

costs Rs 150,000 vs. a normal LED at Rs

60,000.

• For LED assembly, India has huge capacity.

Currently, companies are operating at lower

utilization levels. Dixon has c. 4mn, Onida

1.5-3.0mn (underutilised), ABZ c.0.5mn,

Videotex c.1mn, etc. Additionally, some

companies are also putting up assembling

plant (such as Haier), increasing capacity to

1mn, TCL 4-5mn units etc (expected to start

in June 2021).

• In terms of demand for 2021, there will

be growth, but it might still be lower than

2019. Value growth may be higher, as

big-screen TVs are seeing more demand

than smaller screens. 2021 is a game of

supply-chain management, as sourcing is a

challenge. Large players are having benefit

vs. small players in sourcing and some price

difference.

Takeaways from interactions with a TV industry expert


Will Make in India and Atmanirbhar Bharat lead to

significant value addition in India over the next 3-5

years?

We at Dixon have a very strong conviction that the

consumer durables and electronic goods sold in India will

be manufactured largely in India after the government’s

‘vocal for local’ theme. As more companies are focusing

on branding, distribution, and technological upgradation,

manufacturing of a critical part of the value chain will

see an increase in outsourcing in coming years. Even the

designing aspect of mass products will see higher OEM

participation.

Over the last three years, the tariff structures in electronics

imports have been rationalized, one to promote domestic

manufacturing in India, and two, to deepen the level of

manufacturing locally. As part of the government’s Phased

Manufacturing Programme, duties are being levied or

increased on various components of the electronics goods

which were majorly imported in India a move that will

increase the domestic value addition in India. As far as

the components ecosystem is concerned, it is a journey,

and I am sure that in the next 2-3 years, we will have

a large component ecosystem in the country, starting

with manufacturing of finished goods, where the import

intensity is relatively higher. Once the industry acquires

economies of scale, the component ecosystem will grow

domestically.

INTERVIEW – Mr Saurabh Gupta, CFO, Dixon Technologies

Dixon Technologies Ltd. is a leading

electronics manufacturing services

(EMS) provider in India. A home-

grown manufacturing company,

Dixon Technologies provides design-

focused EMS solutions in consumer

durables, home appliances, lighting,

mobile phones, and security devices

to customers across the globe.


Also, to become 100% self-reliant, what steps do you

expect India to work on?

The government needs to formalize and rationalise land

and labour reforms in the country in order to complement

the recent tax cuts, and to remove structural hindrances to

capital investments, higher focus has to be on infrastructure

and logistics. The government should continue to focus on

the “Make in India” theme and provide further incentives

for investment to companies setting up manufacturing

units, including for the electronics industry. Also, another

issue that requires policy attention is foreign trade strategy.

India’s competitiveness can help it to become an integral

part of the global supply chain at a time when international

companies are looking at expanding their footprint beyond

China, and locating to other markets. Some additional steps

include the actual realization of ease of doing business,

strong skilled resources base, and promotion of R&D

initiatives.

With a higher focus on domestic manufacturing, do you

expect global manufacturers to move towards India?

India’s suffers from a disability of about 6-7% in various

sectors as compared to China, which we can attribute to

lack of adequate infrastructure, domestic supply chain

and logistics issues, high cost of financing, inadequate

availability of quality power, limited design capabilities and

limited focus on R&D by the industry, and inadequacies

in skill development. The government is trying to address

these through the Production-Linked Incentive (PLI) scheme

in various sectors. Global manufacturers have jumped on the

opportunity to set up manufacturing bases in India, and are

optimistic about the kind of incentives proposed under the

PLI scheme. The schemes will attract large-scale investments

and generate huge employment. In the current scenario, the

PLI scheme will provide a huge thrust to companies that are

looking at relocating beyond China.

However, the government of India has to ensure that

– companies incurring capex to set up manufacturing

do not face delays and capital cost overruns, effective

scheme implementation, and business sustainability. The

government needs to promise foreign companies stability,

predictability, and continuity in the wide policy stance.

How important is R&D now that India is expected to

grow its manufacturing for the next 5-6 years? Can India

take a lead in this?

It is India’s turn to ramp up its R&D, technology,

manufacturing, and innovation, which will help to create

more jobs, improve workforce efficiency, and attract larger

cost savings in manufacturing, logistics, and the technology

employed. With the intellectual capital available in the

country, and competitive talent costs, global and domestic

companies have the opportunity to establish their R&D

centres in India, which can ultimately drive localisation.

How big is the exports opportunity? In what products

can India look for exports and in which markets?

In the electronics sector, I feel confident that we are currently

sitting on an inflexion point, where we can think of new

investments and expanding our capacities; over a period

of time, I am confident that India will emerge not only as a

contract manufacturing base for serving domestic markets,

but also for the exports markets, because once scale kicks

in, and operating leverage comes into the system, the

country becomes globally competitive – both in terms of

productivity and skill sets. Government policies are aimed at

creating global champions out of Indian manufacturing.

The government has imposed restrictions on the

import of TV sets; how do you see this panning out for

contract manufacturers such as yourself? How big is the

opportunity size?

As per government data, TVs worth Rs 72.2bn were

imported in 2018-19 out of the total market size of Rs 250bn

– from China and other Asean countries such as Vietnam,

Hong Kong, Malaysia, Korea, Indonesia, and Thailand. LED

TVs were being imported at reduced/zero duty under the

Asean-India FTA and such imports could not be controlled

through increased duty. Hence, non-duty actions, like import

restrictions, were one of the main actions available to the

government. Putting LED TVs under the restricted category

will not only boost domestic manufacturing but will largely

accelerate sourcing by companies from domestic contract

manufacturers that provide Indian-designed solutions, which

will be a significant positive for the contract manufacturing

industry. It will also help deepen the level of manufacturing

in India. In Dixon, we are strengthening our R&D and trying

to get a larger share of customers’ business to our self-

designed solutions.


Open cells, which make up a majority of BOM (bill of

materials) in TVs, are completely sourced from China.

What steps are being taken by the government to

increase local manufacturing of components? What

challenges do Indian manufacturers and companies face?

Open cell contributes more than 60% of the BOM in LED

TVs and with no localisation in India, the government is keen

on expanding domestic production of critical components

such as open cells, but this entails huge capex. And If

India wants to become a manufacturing hub for LED TVs,

the government will have to set up an ecosystem that

manufactures open cells. As part of the government’s Phased

Manufacturing Programme, it is increasing duties on various

components of the LED TVs, which will eventually lead to

higher domestic value addition in India, and is in line with its

vision of creating a component eco-system in India. As per

recent news articles, the Vedanta Group is in talks with the

government for setting up a display fabrication plant.

The biggest challenges that LED TV manufacturers and

brands are facing at present are – 28% GST on LED TVs of

more than 32 inches, a 5% duty on importing open cells,

and prices of open cells rising by more than 3x in the last six

months.

Washing machines and refrigerators are majorly

indigenized (domestic value addition of c.70%); do

you think it is a potential category for exports? What

challenges are we facing in tapping the larger exports

markets?

The total washing-machine market in India is around 7mn

units per annum and Dixon is the leader in manufacturing

with the largest capacity of 2.1mn units (semi and fully

automatic top-loading machines). We provide 100% own-

design solutions with the largest product basket and we

have a presence both in north and south India.

In semi-automatic washing machines, Dixon has the largest

capacity of 1.5mn per annum and has the largest portfolio

of 150 models ranging from 6-10kg. Our top-loading fully

automatic washing machines plant construction is on time

and almost complete; mass production is expected to start

from Q2FY22 this year. We will have c.40 variants ranging

from 6-10kg and will create an annual capacity of 600,000

units per annum. We have already closed an agreement with

a large MNC brand for this. In another 12-15 months, we

will become competitive globally in fully automatic washing

machines. We have set up a plant in Tirupati (Andhra

Pradesh), just 120kms from the Chennai port, for easier

access to exports.

We have requested the government to choose consumption-

based countries and not manufacturing-based countries

while signing FTAs (free trade agreements), as they would

then boost our manufacturing. Since logistics costs are

high in washing machines, and Indian manufacturers have

a huge disability due to the logistics costs, there should

be a compensation framework in place to overcome this

impediment. Also, the government should encourage SMEs

to set up factories for manufacturing of components such as

motors, timers, and gearboxes – which account for 30% of

BOM and are presently imported.

We are creating a capacity of 700,000 direct-cool

refrigerators, and we expect to go on stream in the first

half of FY23. The total market for refrigerators is 14mn

units, with direct cool contributing more than 70% at

10mn. Refrigerators also have huge exports potential in

the next 2-3 years, and are similar to washing machines.

Manufacturing of key components for refrigerators –

compressors, steel sheets, PCM, PCB-assembly, dryer,

chemicals – etc. should be incentivised in India.

The size of the Indian mobile-phone market is c.280mn

phones, of which 120mn phones are feature and 160mn

phones are smart phones. Given that our country is a

growing economy with 65% population under 35 years

of age, where do you see the mobile phone market in

the next 5-7 years?

India is the world’s second-largest smartphone market

with annual volumes of around 160m units. It is growing

faster than the overall global smartphone market. All major

smartphone makers are present in India. The Indian mobile

phones market was valued at Rs 1.6tn in FY19-20 and is

estimated to touch Rs 2tn by FY23 at a CAGR of 6%. The

industry believes 5G will be the next big trigger for growth.

Exports are also supporting domestic mobile phone

manufacturers. Over FY15-20, India saw a sharp reduction in

mobile phone imports led by global brands gradually setting

up manufacturing plants in India. Imports have declined

to Rs 74bn in FY20 from Rs 486bn in FY15, and exports of

mobile phones have increased manifold to Rs 272bn in the

same period from Rs 15bn.


Under PLI, many global and domestic contract

manufacturing companies are expanding their capacities,

which should reduce shipments into India. However,

our current domestic value addition in mobile phones is

only c.20%. Where do you see this going and in which

components we will start localising?

Even for high-volume products such as smartphones,

localisation is low, largely involving PCB assembly, final

assembly, and accessories. The increase in localisation in

recent years has been due to the government’s differential

duty structure strategy under PMP. The next leg of

localisation will have to be fuelled by investments in critical

components manufacturing, and we can see that there are

early signs of positive developments, with announcements

from Samsung Display, Holitech, and Salcomp etc. In the

next 4-5 years, domestic value addition is likely to grow to

35-40% from the current 15-20% in case of mobile phones,

and to 45-50% for electronics components.

How is the demand for wearables in India currently?

What can we expect out of this segment in the long

term, and does it have the potential to gain sizeable

market share in the overall electronics industry?

India’s wearable’s market is approximately Rs 5bn, and

has been one of the most rapidly growing ones in India.

According to a report by International Data Corporation

(IDC), the Indian wearables market posted 144% yoy growth

in 2020, in which year shipments from India were 36.4mn

units. Further, India was the only country in the top-20 to

see triple-digit growth in wearables last year, and continues

to be the third-largest wearables market globally. TWS (twin

wireless speakers) earbuds also saw the highest gains in

exports, with a total of 11.3mn units shipped in 2020.

We have started manufacturing TWS for boAt and we

see the relationship getting stronger every month with

manufacturing of more products for them. This is an

opportunity for us to back an emerging brand not only

for India, but for a global market. The government is in

discussions to come up with a PLI scheme for this category,

to increase domestic manufacturing.

The government has announced a PLI scheme in laptops

and IT hardware as well. What opportunity size are we

looking for in laptops and IT hardware manufacturing?

What are Dixon’s plans for this segment?

According to IDC, the market size for laptops in India was

approximately 7.5mn units in 2019-20 valued at Rs 339.5bn

(US$ 4.85bn). Similarly, the market size for tablets was

around 2.4mn units, valued at Rs 35bn (US$ 0.5bn). The

server market stood at 200,000 units valued at Rs 91bn (US$

1.3bn).

Currently, laptop and tablet demand in India is largely

catered to through imports valued at US$ 4.21bn and US$

0.41bn, respectively, in 2019-20. The unutilized installed

manufacturing capacity is an impediment to scaling up


ICEA estimates that India has a US$ 100bn opportunity to

manufacture laptops and tablets in the country over the next

five years, which can contribute 18% to global exports of

these devices.

The total budgetary outlay is Rs 73.3bn over the PLI period

of four years, with higher incentives for the domestic sector.

For a domestic company such as ours, the investment

required is Rs 200mn, with a maximum incentive of Rs 1.1bn

on the max revenue potential of Rs 49bn over a period of

the PLI. There are guidelines laid down for value addition

relating to PCB assembly, battery packs, power adapters,

and cabinets over the PLI period. It is our core target

segment, and we will pursue it quite aggressively.


The Indian washing machines market was estimated at 7mn

units in 2019-20, valued at Rs 104bn. Despite the pandemic,

this product segment is not likely to decline in 2020-21. The

increase in number of dual-income households, along with

insufficient time for doing laundry, has driven the demand for

this under-penetrated product. Manufacturers are focusing

on increasing capacity, new product developments, and

adoption of advanced technologies. Haier’s second facility

(being set up in Noida) is enhancing its capacity. This

provides an opportunity to vendors and leading OEMs to

scale and expand their business. Currently, the OEM market

is mostly catered by Dixon Technologies, PG Electroplast,

Noble Group, and Empire Home Appliances. Other small

companies with installed capacity are also planning to enter

the OEM model for better capacity utilization.

Market composition of washing machines

The semi-automatic segment has 57% volume market share,

and 56% value share, largely because it is cheaper than the

front-loading segment or the fully automatic top loading

one. LG dominates this segment, but it has lost some market

share to Bosch, Whirlpool of India, and Haier in recent

years. Godrej Appliances and Samsung have gained some

share as well. IFB Industries holds 6% share (only present in

fully automatic machines). Panasonic, Carrier Midea, Onida

Electronics, Lloyd, Toshiba, TCL, Voltas Beko have their own

niche clientele – which is the middle-income group. Xiaomi,

Thomson, and Sansui have forayed into the semi-automatic

washing machine segment due to demand coming in from

tier-2 and tier-3 cities. E-commerce front was limited to sale

of front-loading washing machines, but the pandemic has

changed that, and almost all categories are now sold online.

Currently, major brands are sourcing semi-automatic washing

machines from the domestic contract manufacturers and for

fully automatic, they have their own manufacturing facilities.

However, many brands have started contracting to ODMs

like Dixon Technologies and PG Electroplast, even for fully

automatic machines.

E-commerce was limited to sale of front-loading washing machines, but the pandemic has changed that, and almost all categories are now sold online

Semi-automatic dominates the washing machines market with 57% market share

FA-TL: Fully Automatic Top Load, FA-FL: Fully Automatic Front LoadSource: Media reports, PhillipCapital Research

Brands Own Manufac-turing

Out Sourc-ing %

Out-sourcing Partners (Name)

LG 100% 0

Whirlpool of India

100% 0 PG Electroplast for components

Samsung 50-60% 40%-50% Dixon Technologies

Haier 80% 20% PG Electroplast for components

Onida Elec-tronics

100% 0%

Private labels

0% 100% Dixon, PG, Mirc, Noble and others

Lloyd 0% 100% PG Electroplast

Own manufacturing and outsourcing mix in washing machines

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Washing machines: Huge potential and a possible exports opportunity


Market share of companies across product segments

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All major companies are manufacturing automatic washing

machines in-house. Players such as Whirlpool of India, IFB

Industries, Bosch, LG, and Samsung have a very strong

domestic in-house manufacturing presence. Currently,

India does not possess the outsourcing capabilities in

semi-automatic washing machines, but Dixon Technologies

and PG Electroplast are some players that are building up

capabilities to produce automatic washing machines in India.

Industry experts believe that over the next few years, these

contract manufacturing companies will build up capacity for

automatic washing machines, which will help smaller players

and domestic companies to source locally.

Domestic value addition is c.70% in washing machines, which will increase to 80-85% over the next two years

Over the next few years, these contract manufacturing companies will build up capacity for automatic washing machines

Washing machines imports in India; China is a major exporter to India, followed by Thailand and Korea

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Exports will rise due to increasing domestic manufacturing capabilities, and brands increasing their distribution network in overseas markets

Latest industry updates and trends in washing machines

• LG Electronics: Advanced innovation in laundry;

deploying AI to deliver precision washing.

• Samsung: Connected products, ecosystem of intelligent

products. All Samsung’s devices offer customers control

over their devices.

• Panasonic: Strengthened its washing machines portfolio

by introducing 38 new models; 23 fully automatic top-

loading, 15 semi-automatic. Built in water heaters, water

re-use technology.

• Godrej Appliances: Plans to introduce a new product line

of fully automatic front-load washing machines with an

annual capacity of 400,000. Plans to double its capacity at

both its Shirwal (Maharashtra) and Mohali (Punjab) plants.

The company is planning to invest Rs 7bn by 2022. With

this investment, it expects to boost its capacity to 6.5mn

units annually.

• Haier: Expanded its product portfolio with 83 new

models, betting big on smart home solutions. The

company announced 8 new SKUs in the washing

machines segment, including Wi-Fi enabled front

load smart washing machine with a super drum. The

company also introduced its Wi-Fi enabled front-load

dual drum washing machine, which can be operated

through the Haier Smart home app.

• IFB Industries: Range of washing machines introduced

in 2018-19 offer deep-clean technology, wash programs

for delicate clothes, intuitive user interfaces, and smart

mobile-based technologies. New product developments

continue to focus on IoT capabilities and water and

energy efficiencies. Expects the category to be a

revenue and margin driver along with the front-load

category. Expanded capacity in 2018-19 when IFB’s top-

load capacity was stretched and it was unable to supply

to the market in full.

• Bosch: Markets a wide range of top loaders and

front loaders, featuring Allergy Plus Programs, which

washes laundry at 60 degrees Celsius, giving germ-free

and clean laundry; German-engineered ‘anti tangle’

technology and ‘wash forward’ program offers cleaning

results in 60 minutes.

Company name CAPEX (in Rs mn.) State Type of CAPEX Capacity Product offerings Date of Announcement

Voltas 10000 Sanand Arcelik (VoltBek) 2.5mn units p.a. Home appliances 2020

Haier appliances 3700 Ranjangaon, Pune 1mn units p.a. Consumer durables 2019

Godrej appliances 7000 Shirwal and Mohali 65mn units p.a Consumer durables 2019

Current planned capacity expansion

Source: Media reports, PhillipCapital Research

Industry expects India to become an exports hub for fully automatic washing machines. Whirlpool recently set up a manufacturing plant for making front-load machines in South India


Current capacity and additional capacity announced by washing machine makers

Global market scenario in washing machines

Increasing globalization will play an important role in driving

the demand for washing machines ahead.

Factors driving the demand for automatic washing

machines:

• Increasing female labour-force participation

• Increasing middle class populations

• Nuclear families rising

• Increasing media participation

• Growing awareness about technology

Newer technologies have taken over old technologies to

address the demand for energy-efficient new-generation

products. Governments the world over are urging consumers

Company name (Units mn)

Capacity Capacity Addition

S.A. AUTO S.A. AUTO##

Brands

LG 1.7-2.0 1.00 -

Whirlpool 1.0-1.5 0.5-0.7 -

Samsung 0.5-1.0 0.5-0.7 -

Godrej Appliances 0.5-1.0 0.10 -

Haier India 0.5-0.6 - 1.00

IFB - 0.5-0.7

Bosch - 0.35 - 0.5-1.0

Other Brands - -

OEM’s

Dixon Technologies 1.20 0.30 0.60

PG Electroplast 0.80-1.0 - 0.50

Mirc Electronics 0.25-0.30 - 0.2-0.5

Noble 0.25-0.35

Vimal 0.25-0.30

Others 0.25-0.30

to use products which are energy-efficient (Bureau of Energy

Efficiency – BEE rated). This has led to manufacturing of

more energy-efficient technologies. Globally, the front-load

segment enjoys the highest market share as it requires less

space, is efficient, and has the best performance. The semi-

automatic machines are simple to use, very affordable, and

can handle laundry in two drums for washing and drying. The

fully automatic machine segment has shown decent growth

as well, due to its price, convenience, and wide range of

options.

Leading companies in the market have been investing

in smarter AI-based technologies. Key market players

are developing voice control integration with Alexa and

Google assistant to help control a combination of washers

and dryers. One of the trends seen in the market is the

use of technology that reduces the water for washing. The

realisation that water is limited has compelled manufacture to

develop solutions that minimise the use of water.

Smart washing machines

The global smart washing machines market is likely to see

21% CAGR in 2020-27. Technological advancements in

the smart home category are causing a rise in demand for

connected washing machines. Growing scarcity of water

across the globe is compelling manufacturers to make

products with technologies that restrict the use of water.

Globally, smart washing machines with a capacity of 6-10kg

held the largest share of 66% in 2019. Rapid nuclearization

of families due to increasing urbanisation increased the need

for washing machines with capacity of 7.5 kg. A wash cycle

of 7.5 kg uses less water, electricity and detergent when

compared to two cycles of 3.5 kg.

Industry experts believe that smart-washing-machines in

countries such as India, China, Vietnam, and Indonesia are

likely to see the fastest expansion at 21% CAGR. Increasing

internet penetration and technological advancements in

countries like China and India are likely to

fuel product demand. Increased adoption of

automatic washing process as an essential

part of everyday housekeeping activity has

created lucrative growth prospects in Asia.

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The Indian market for refrigerators was valued at Rs 120bn

in 2019-20, a 12.5% rise over the previous year; 14.2mn

units were sold, up 15%. LG, Samsung, and Whirlpool of

India have been dominating the washing-machines segment

in India since last 10-15 years. Panasonic and Hitachi cater

mostly to the premium segment; LG, Samsung, Haier, Godrej

Appliances, and Whirlpool of India cater pre-dominantly

to the mass segment, with an aggressive stance. Bosch,

Liebherr, Mitashi, BPL, Intex Technologies, TCL, Siemens,

Carrier Midea, Electrolux, and many other players have less

than 15-20% market share. Samsung has started counting on

India’s small towns and rural cities to consolidate its position

as the leader in the refrigerator segment.

There has been constant innovation and change in consumer

preferences in the refrigeration segment over the years.

While single-door products constitute most refrigerator

sales, double-door refrigerators have been gaining market

share consistently. New product offerings in this segment

are focused on energy efficiency. Refrigerators fall under the

mandatory ‘standard’ and ‘labelling’ program, introduced by

the BEE under the Ministry of Power. Prices of refrigerators

rose by 3-8% in 2020 varying from model to model as

new energy norms were introduced. Prices of high-end

refrigerators increased by Rs 5,000-8,000 as manufacturers

were compelled to shift to vacuum panels (from traditional

foams) to attain higher energy efficiency.

In frost free, 241-270 litre capacity is most sold; 190-199 litre in direct cool

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Frost free capacity-wise market share

Direct cool / FF market share

DC vs. FF capacity-wise market share

Refrigerators: Premiumization to drive growth


Refrigerators: Pandemic-driven changes in buying

There has been a major shift in the way consumers are

buying appliances now. Traditionally, customers preferred

buying refrigerators with long replacement cycles from brick-

and-mortar stores; the need to see and feel products first-

hand played an imperative role. Dealers had huge inventory

levels and were eager to liquidate their inventory during the

lockdown.

A clear demand shift from ‘want’ to ‘need’ was evident

during the pandemic. As people stockpiled food, the need

for more storage, thus higher-capacity refrigerators, was

noticeable. The trend for eating at home contributed to this

upsurge in demand considerably. During the pandemic,

e-commerce sales saw a huge uptick, as people were forced

to shop online due to closure of brick-and-mortar stores.

The global percent of online sales for domestic appliances –

small and large – rose 10% over 2019. Online growth did not

stop once the retail stores opened, showing a change in in

consumer buying habits. Consumers preferred to buy those

solutions which would support them and save time in a busy

work and schooling from home scenario, which drove the

demand for high-quality and energy-efficient products.

Manufacturing status: Majorly in-house manufacturing, low share of out-sourcing

Industry pegs the production volume of refrigerators in

India at over 12mn units in FY20; 27% of the total consumer

appliances market.

Refrigerators imports in FY20 were Rs 42bn, saw CAGR of 9% over FY13-20 to Rs 42bn

Refrigerator monthly imports

Refrigerator monthly exports: Remained steady since May 2020

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EMS providers like Dixon are looking to add refrigerators in their manufacturing bucket


Increasing focus on domestic manufacturing: Capacity

expansion

Due to the recent surge fuelled by the pandemic and

the trade war, refrigerator manufacturers have gone on

a localisation drive. Rs 75bn worth of investments were

made in the past five years for capacity expansion, and

new capacity deployment has started in the industry. The

government’s improved duty structure has also led to

encouragement of backward-integration of the production

component amongst manufacturers, with a stronger push

towards in house manufacturing.

Most companies are making investment commitments

towards energy-efficient technologies, including inverter

technology. The thermocouple, which senses the

temperature inside the refrigerator, plays an important role in

these technologies. Refrigerators built in the past and built

now differ greatly in terms of the energy they use, which has

led to a replacement market, as more consumers switch to

the latest technology. Manufacturers are hustling to meet

standards, thus making energy efficient products. Companies

have been providing user-friendly features like water tap on

the door, door through the ice, and other such technological

advancements.

Company name CAPEX (Rs mn)

State Type of CAPEX Capacity Product offerings Date of Announcement

Voltas 10000 Sanand Arcelik (VoltBek) 2.5mn units p.a. Home appliances 2020

Whirlpool of India 5900 Puducherry, Faridabad 2mn p.a. Refrigerators 2019

Haier 40000 Noida Refrigerators Refrigerators, WM 2019

Panasonic 3000 Jhajjar Panasonic Technopark Refrigerators

Capex announced by branded companies in the refrigerator segment

Source: Media reports, PhillipCapital Research

In recent media interviews, Whirlpool of India’s MD evinced an interest to make India an export hub for washing machines and refrigerators

Contract manufacturing will increase their game by adding frost free in their portfolio, supplying to white label and small brands

Currently, major brands are manufacturing refrigerators in-house; some premium refrigerators (such as side-by-side and frost-free) are imported. Small brands are majorly sourcing direct-cool refrigerators from the domestic market

Global market dynamics in refrigerators

The global household refrigerators market is likely to expand

at a CAGR of 5% between 2019 and 2023 – to a size of

US$ 42.9bn by 2023. The French-door bottom-freezer (also

known as bottom-mounted refrigerators) segment accounts

for a majority share, whereas side-by-side refrigerators

are likely to see the highest rate of growth among all the

categories due to the low base and increasing need of

higher capacity. The need for higher capacity and frost-free

products has been driving demand and manufacturers have


been focusing on premium and high-end spectrum products

to generate a higher profit.

Sale of refrigerators through e-commerce has been gaining

every year and is likely to gain higher market share by 2026

due to higher sales and better incentives offered through the

e-commerce platforms and company portals. Companies are

devoted to providing advanced offerings, faster delivery, and

convenience.

Refrigerators built in the past and built now differ greatly in terms of the energy they use, which has led to a replacement market

IoT-enabled refrigerators

The advent of IoT and AI technology has brought in a

new wave of innovation to create a smart refrigerator. The

integration of IoT to produce refrigerators will lead to a

higher quality product and a more convenient life. Unlike a

traditional refrigerator, smart refrigerators can remind users

of food stored, prompt maintenance, and help them use it

in a much-more efficient way, thus making lives easier. The

smart refrigerator market is likely to expand at a CAGR of

17% between 2019 and 2026. Global shipments are likely

to reach 2mn units by 2026. Growing smart households,

increasing demand for intelligent appliances, and a higher

standard of living are driving the smart refrigerator sales

globally. Smartphone connectivity allows users to operate

these appliances even from distant locations. Technologically

advanced product launches, coupled with regional expansion

by refrigerator manufacturers, has created opportunities for

this market.

• The industry restored its production in August 2020 (post lockdown). From then, production and demand for home appliances has been increasing every month, as people are working from home and most students are being schooled online. Also, the government has taken up many reforms (PLI, etc.) to push domestic manufacturing over the last 7-8 months.

• The industry expects huge capex/production, as companies have increased capacity, as they have taken a positive call on local manufacturing and aim for 30-40% localization. All OEMs are ramping up in-house production/capacity; LG and Samsung have ramped up capacity. However, companies won’t take an aggressive call on capacity expansion till the market is highly volatile and unpredictable and dependency on ODMs will be quite high. In ACs, companies that imported last year are planning in-house production

or domestic sourcing this year (Samsung is increasing in-house production for ACs). All companies are producing higher than last year.

• Contract manufacturers are also increasing capacity. A leading contract manufacturer has increased the capacity of TVs and has started a new line for washing machines and looking to add a refrigerator plant in south India. In ACs, contract manufacturers such as Amber, PG Electroplast, and E-durables are increasing their capacity. Amber is highly backward integrated in terms of board manufacturing.

• The contract manufacturing model is here to stay based on the following: (1) Entry-level models are not sustainable to be made in house, so ODM expertise is needed for such products, which have thin margins. (2) Small players will not put up capacity; they will focus on marketing and selling.

And (3) if there is over capacity, even then contract manufacturers have tremendous scope in terms of component manufacturing.

• The government will come up with a PLI for electronics components. Companies as well as ODMs will apply.

• Supply chain issue: Saw some disruption initially in November and December due to logistics. But current issues are about availability of raw material/components; micro-controller shortages have led to some supply issues in the market. Impact was also seen in refrigerators and washing machines due to higher input prices. The worry is not about costs, but about shortages due to insufficient availability of raw materials such as ICs, steel, and styrene are facing a shortage in the market.

Excerpts from interaction with the sourcing head of a leading consumer durables company


INTERVIEW – Mr Maulesh Chhaya, Industry Expert, Mentor

What is your view on the future of

electronics manufacturing in India?

Do you think it will contribute largely

to the economic growth of the

country?

It has huge potential to boost

economic growth for the country,

considering the penetration levels of

TVs, and the younger generation – who

is consuming electronics every minute.

We are the largest suppliers of mobiles

globally.

We can be largest suppliers of mobiles,

but not the largest manufacturers, as

most of the current manufacturing

is conversion of CKDs received from

China happening in India.

We are yet to create a component-

suppliers’ eco system in India. We

are dependent on China, Taiwan, and

Vietnam for this.

In case of TVs, we do not have any

open-cell manufacturers, as it is highly

capital intensive and needs a huge

R&D base to support it. TCL was about

to start manufacturing of open cells of

TVs in India, but the India-China issues

delayed this.

Given the government push

to domestic manufacturing, by

imposing bans on few products,

and introducing PLIs, do you think

imports will reduce significantly?

What value addition (in %) do you

expect in electronics going ahead?

PLI scheme for electronics is good, and

has again shifted CKD supplies to India

from China, Korea and Vietnam, and a

majority of the conversion to finished

products is happening in India, barring

ultra-premium products that are still

supplied as CBUs, mainly from Korea

for Samsung, LG Electronics, and Sony.

Maximum value addition will be 10-

15% in the near future.

Major global companies are de-

risking their supply chain and looking

for alternate countries to China,

such as India, Thailand, Malaysia,

Vietnam, etc. What is your view on

India increasing its share in global

electronics manufacturing?

With focused PLI schemes by GOI,

there are chances for India to play a

major role in the global supply chain,

but the most important is to get the

core technologies and R&D to India for

global manufacturers. GOI needs to

incentivise and work on labour reforms

aggressively to attract this, else they

will settle down in other countries like

Malaysia, Vietnam, Thailand. Recent

reports – that China is helping Pakistan

and Bangladesh to establish the

factories for mobile phones to ensure

India does not play a key role – are

worrying.

Combining the push from the

government for domestic

manufacturing and building

an ecosystem for component

manufacturing, which product

category will see exports increasing

first?

Mobile and TVs will be the first

products that would see immediate

exports to other countries.

Can you give some insight on

the current demand scenario into

electronics, and the growth expected

over the next 5-7 years?

TV will see moderate growth of 8-10%

in the near future. To push demand,

manufacturers, GoI, and Indian retailers

need to work on bringing down the

cost to end consumers. 28% GST +

15% overheads for brands + retailers

margins of 25% totals 60%, which

should be brought down to 40% to

boost local consumption and become

globally competitive.

Mobiles could see growth of 10%+,

as 5G would drive the growth for the

industry.

Interview with industry expert – Mr Maulesh Chhaya –

Mentor, The White Lotus Consultants; Ex- regional manager (Gujarat,

Madhya Pradesh and Chhattisgarh,) LG Electronics.

The White Lotus Consultants provide consulting programs

for MSME in core business domains


OUTLOOK

Make in India! But how soon will India make for the world?

Extensive interactions with companies

(both listed and unlisted), channel

partners, and industry observers

indicates that Indian electronics

contract manufacturing is bound to

grow exponentially, given the efforts

being taken by the government

and large industry bodies. The real

questions are about the extent and the

timing – when will the industry hit a

tipping point?

Short/mid termIncreased localization will boost

domestic manufacturing, reducing

import dependency

Incentives offered by the government

in the form of PLI, SPECS, EMC 2.0 will

provide a necessary boost to the much-

required localization in India. In the

last few months, imports of consumer

electronics have been decreasing and

exports have been rising, and this

trend will continue. Many companies,

domestic and international, have

made considerable investments in

setting up manufacturing bases in

India, to cater to the large domestic

market and to take part in the global

supply chain. Higher tariffs imposed

on imports of goods from China have

reduced India’s import dependency,

giving local companies an opportunity

to ramp up their manufacturing and

cater to the large domestic market.

However, critical components remain

a challenge and this is why India will

first focus on assembling, and then

turn to component manufacturing. In

the medium term, due to supply chain

disruption (as capacities shift to India)

the industry could go through some

price instability (prices could rise across

consumer durables products).

India will become an attractive

destination for global giants

Due to the trade war between USA

and China, and the pandemic, many

companies globally have realized the

pitfalls of their overdependence on

one nation (China) for manufacturing

electronics. Growing anti-china

sentiment has led to many companies

hedging, by shifting a part of their

production to other countries such as

Vietnam, Thailand, India, Indonesia,

Taiwan, and Malaysia. India is ahead of

much of its competition, as it not only

provides a favourable environment for

large scale electronics manufacturing

but also has a large domestic market

which is largely untapped. Many

companies have announced fresh

investments in India and the trend is

likely to continue, going forward.

Bridging the disability gap between

India and its competitors

India has had a rollercoaster of a year,

with many companies announcing

fresh investments and relocation

of their production bases to the

country, although the country still

lacks the necessary resources (to an

extent) that it needs to become a

global export hub. Increased global

attention towards India will lead to

further contraction of the disability

gap between India and its competition

as the government will focus on

creating the required infrastructure

for large-scale manufacturing in the

country. Necessary steps will be taken

to address the water, power supply,

, and infrastructure issues; necessary

technical skills will be instilled in the

workforce. for manufacturing.

Mid/long termHigh domestic value addition

Current domestic value addition is

under 25-30% in product categories

such as air conditioners, TVs, mobile

phones, and small appliances. As the

disability decreases and domestic

companies invest in adding capacities

and increasing capabilities, the

component manufacturing ecosystem

in the country is expected to see

robustness in output. Also, the

global component manufacturers

would be looking to come to India.

Domestic contract manufacturing,

which currently assembles and


sources key components from outside

India, will source components within

India. In the mid- to long-term,

except for raw materials, majority of

input components will be sourced

domestically. As the industry sees

domestic manufacturing of key

components such as compressors,

motors, etc., within 5-7 years, current

value addition is expected to increase

from 25% to 80-90% over 5-7 years.

Similarly, in mobile phones and TVs,

with domestic manufacturing of

components like display and open cell

over the next 5-7 years, the industry

will see value addition of c.50%-70%

from current 12-15%.

High penetration across product

categories

India has relatively low penetration in

consumer durables compared to its

peers. In air conditioners, penetration

is only 5%, which is significantly

lower compared to 100% in China.

Given the current lower penetration,

India’s demography, and improving

lifestyle, many global companies have

found India an attractive destination.

Moreover, factors supporting domestic

contract manufacturing such as PLI

schemes and capacity addition, is

expected to increase at a higher rate

than in the past. Robust supply, and

a majority of the supply chain being

within India, will support the durables

industry in bringing costs down, which

in turn will make products affordable

to the country’s middle-income group

and push up demand for products. In

key product categories such as ACs,

penetration level is expected to see

low double-digit penetration within few

years of the government introducing

schemes, and high penetration levels in

the mid to long term.

India becoming an export hub,

making for the world: The

Government of India and domestic

electronics industry has a strong

intention to make India not just self-

reliant, but also globally competitive,

and this reflects in government

schemes such as PLI, SPEC, etc.,

which bridges the disability gap

with competing nations such as

Vietnam and China. Currently, Indian

manufacturers are far from achieving

the dream of make for the world, as

certain challenges such as raw-material

sourcing, skilled labour, and import

dependency in key components

lies. However, given the push by the

government in terms of bringing

in schemes, companies’ de-risking

China+1 strategy, India’s favourable

demographic, and lower penetration

in consumer durables gives investment

comfort to foreign capital. India’s

make-in-India to ‘make-for-the-world’

dream isn’t far. Global giants will

invest in critical components in India

and making it an exports hub. Indian

electronics manufacturing’s contribution

to the GDP currently stands low, and

with all efforts being made, over the

next 5-7 years, its contribution to GDP

and India’s share in global electronics

exports are bound to increase.


India moving towards Atmanirbhar


Channel Check

Interaction with one of the largest electrical regional retail chains of Andhra Pradesh

• AC is doing better than refrigerators and washing machines.

• In ACs, we are stocking up from December 2020, but from March 2021 secondary sales are

picking up.

• This time, Samsung is going aggressive; offering good prices and products. In refrigerators

and washing machines, the brand has not taken any price hikes.

• Now, all companies are focusing on volume push, so price hike is not on the cards.

Interaction with regional retail chain (westzone )

• In ACs, channel has not stocked up much. Secondary sales growth is equal to primary sales

growth. Over the last two months, this segment has seen 10-15% volume growth. Companies

like Voltas and LG saw higher growth. Some supply-chain issues by companies such as

Mitsubishi, etc. Overall industry price hike is c.8% over the last two months.

• In refrigerators, higher growth in FF (above 350ltrs) of 15-20%. DC flat yoy.

• In washing machines, higher growth in automatic at 15-20%; semi-automatic at c.10%

• Voltas-Beko: This is the first year for DC, so there is higher focus on placement.

• Samsung is aggressive in all products; higher focus on placement and price.

Interaction with one of the largest distributors from north India

• Refrigerator sales are hurt mainly because of the wedding season getting impacted. But we

expect a strong season for ACs. Already, companies are seeing supply shortages.

• In ACs, branded companies have hiked prices by 8-10% over the last two months.

Interaction with residential air conditioner distributor in Madhya Pradesh

• In ACs, banned imports of air conditioners with refrigerants has resulted in shortages. Some

small companies are not able to import. Expects this to help Voltas, Lloyd, and Midea in

gaining market share.

• In January and February 2020, the AC industry saw a growth of 10-15% in volumes; increase

in RM costs has resulted in a price hike of 10-12%.

Second wave of Covid impacted secondary sales of consumer durables in the month of April, channel expects c.40-60% impact on sales. Cooling products have seen a higher impact with inventories hovering at 3-4 weeks. Lower demand has led manufacturers and brands to cut their production by 20-30%


Indian Economy – Trend Indicators

Monthly Economic Indicators

Quarterly Economic Indicators

Growth Rates (%) Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 Feb-21 Mar-21

IIP 5.2 -18.7 -57.3 -33.4 -16.6 -10.5 -7.1 1.0 4.5 -1.6 1.6 -0.9 -3.6

PMI 54.5 51.8 27.4 30.8 47.2 46.0 52.0 56.8 58.9 56.3 56.4 57.7 57.5 55.4

Core sector 6.4 -8.6 -37.9 -21.4 -12.4 -7.6 -6.9 0.6 -0.5 -1.1 0.2 0.9 -4.6

WPI 2.3 0.4 -1.6 -3.4 -1.8 -0.2 0.4 1.3 1.3 2.3 2.0 2.5 4.2 7.4CPI 6.6 5.8 7.2 6.3 6.2 6.7 6.7 7.3 7.6 6.9 4.6 4.1 5.0 5.5

Money Supply 10.2 8.8 10.7 11.7 12.3 13.2 12.6 12.2 11.6 12.5 12.4 12.1 12.7 11.8Deposit 10.0 7.9 9.8 10.7 11.0 12.0 10.9 10.5 10.1 10.9 11.3 11.1 12.0 11.4Credit 7.5 6.2 6.7 6.2 6.2 6.3 5.5 5.1 5.1 5.8 6.1 6.0 6.6 5.6Exports 3.2 -34.3 -60.3 -36.5 -12.4 -10.2 -12.7 6.0 -5.1 -8.7 0.1 6.2 0.7 60.3Imports 3.6 -28.0 -58.6 -51.0 -47.6 -28.4 -26.0 -19.6 -11.5 -13.3 7.6 2.0 7.0 53.7Trade deficit (USD Bn) 4.5 -9.2 -55.9 -79.5 -105.2 -64.0 -51.2 -76.6 -25.9 -22.6 23.7 -5.0 24.1 39.4Net FDI (USD Bn) 2.7 4.0 0.2 -0.2 -0.8 3.5 18.2 2.9 4.6 5.7 6.5 3.5 -2.9

FII (USD Bn) -1.5 -15.0 -1.8 -0.4 3.3 0.7 5.6 1.4 3.0 9.8 8.6 1.2 2.7

ECB (USD Bn) 4.2 7.4 1.0 1.5 1.0 2.1 1.8 5.2 2.0 2.0 3.0 3.7 2.6

Dollar-Rupee 71.5 74.4 76.2 75.7 75.7 75.0 74.6 73.5 73.5 74.3 73.6 73.1 72.8 72.8

FOREX Reserves (USD Bn) 481.5 475.6 479.5 493.5 506.8 534.6 541.4 542.0 560.7 574.8 580.8 590.2 584.6 579.3

NRI Deposits (USD Bn) 132.5 130.6 129.3 131.1 132.7 135.1 137.8 137.3 138.0 139.3 140.5 142.2 142.4

Balance of Payment (USD Bn) Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21 Q2FY21 Q3FY21

Exports 83.1 87.4 82.7 80.0 81.2 76.5 52.4 75.6 77.2

Imports 132.4 122.6 129.5 119.6 117.3 111.6 63.2 90.4 111.8

Trade deficit -49.3 -35.2 -46.8 -39.6 -36.0 -35.0 -10.8 -14.8 -34.5

Net Invisibles 31.5 30.6 31.8 32.1 33.4 35.6 29.8 29.9 47.4

CAD -17.8 -4.6 -15.0 -7.6 -2.6 0.6 19.0 15.1 -1.7

CAD (% of GDP) -2.7 -0.7 -2.1 -1.1 -0.4 0.1 3.7 2.4 0.2

Capital Account 13.8 19.2 28.6 13.6 23.6 17.4 1.2 16.1 33.5

BoP -4.3 14.2 14.0 5.1 21.6 18.8 19.8 31.6 32.5

GDP and its Components (YoY, %) Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21 Q2FY21 Q3FY21

Agriculture & allied activities 2.6 1.6 3.3 3.5 3.4 5.9 3.3 3.0 3.9

Industry 4.3 1.4 1.0 -2.7 -3.0 0.0 -31.1 -1.6 1.4

Mining & Quarrying -7.3 -4.8 -1.3 -5.2 -3.6 5.2 -18.0 -7.6 -5.9

Manufacturing 5.6 2.1 0.6 -3.0 -2.9 -1.4 -35.9 -1.5 1.6

Electricity, Gas & Water Supply 8.7 5.5 6.9 1.7 -3.1 4.5 -9.9 2.3 7.3

Services 6.5 8.3 6.8 7.3 5.8 3.5 -24.8 -10.9 0.0

Construction 7.0 6.0 3.7 1.0 -1.3 -2.2 -49.4 -7.2 6.2

Trade, Hotel, Transport and Communications 9.7 6.9 6.2 6.8 7.0 2.6 -47.6 -15.3 -7.7

Finance, Insurance, Real-Estate & Business Services 4.5 8.7 8.8 8.9 5.5 2.4 -5.4 -9.5 6.6

Community, Social & Personal Services 4.7 11.6 5.6 8.8 8.9 10.1 -9.7 -9.3 -1.5

GDP at FC 5.3 5.6 5.0 4.6 3.4 3.0 -22.4 -7.3 1.0


Annual Economic Indicators and Forecasts

Indicators Units FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23

Real GDP/GVA growth % 6.1 7.2 8.0 8.0 6.6 6.0 3.9 -6.0 11.5-12.5 5-6

Agriculture % 5.6 -0.2 0.6 6.8 5.9 2.4 4.0 3.6 3.5-4.0 3.5-4

Industry % 4.2 8.1 11.9 8.4 6.8 4.5 0.8 -6.3 11.5-12.5 5-5.5

Services % 6.9 9.0 8.6 8.1 7.8 7.7 6.4 -8.2 13-14 5.5-6

Real GDP ` Bn 90636 97121 104919 113190 121042 128031 133011 123392 138199 145800

Real GDP US$ Bn 1499 1588 1603 1687 1878 1844 1887 1667 1919 2083

Nominal GDP ` Bn 112335 124680 137719 153624 170950 189712 203398 194820 227696 248644

Nominal GDP US$ Bn 13.0 11.0 10.5 11.5 11.3 11.0 7.2 -4.2 16.9 9.2

WPI (Average) % 1858 2039 2104 2290 2652 2714 2885 2633 3162 3552

CPI (Average) 9.5 6.4 4.9 4.5 3.6 3.4 4.8 6.1 5-5.5 4.5-5

Money Supply % 13.5 12.0 10.3 7.3 9.6 10.6 8.8 12.7 8.5-9.5 9-10

CRR % 4.00 4.0 4.0 4.0 4.0 4.0 3.0 3.5 4.0 4.0

Repo rate % 8.00 7.50 6.75 6.25 6.00 6.25 4.40 4.0 4.0 4.0

Reverse repo rate % 7.00 6.50 5.75 5.75 5.75 6.00 4.00 3.35 3.75 3.75

Bank Deposit growth % 14.6 12.1 9.7 11.2 6.2 9.6 8.3 12.7 8.5-9.5 9-10

Bank Credit growth % 13.5 12.5 10.7 4.7 9.8 13.0 7.5 6.6 '10-11 9-10

Centre Fiscal Deficit ` Bn 5245 5107 5328 5356 5911 6494 9356 18486 15068 14919

Centre Fiscal Deficit % of GDP 4.6 4.1 3.9 3.5 3.5 3.4 4.6 9.5 6.8 6.0

State Fiscal Deficit % of GDP 2.2 2.6 3.1 3.5 2.4 2.9 3.2 4.5 3.5 3.2

Consolidated Fiscal Deficit % of GDP 7.1 6.6 7.0 7.0 5.9 6.3 7.8 14.0 10.3 9.2

Exports US$ Bn 318.6 316.7 266.4 280.1 309.0 337.2 320.4 290.0 339.3 352.9

YoY Growth % 3.9 -0.6 -15.9 5.2 10.3 9.1 -5.0 -9.5 17.0 4.0

Imports US$ Bn 466.2 460.9 396.4 392.6 469.0 517.5 477.9 391.9 501.6 526.7

YoY Growth % -7.2 -1.1 -14.0 -1.0 19.5 10.3 -7.6 -18.0 28.0 5.0

Trade Balance US$ Bn -147.6 -144.2 -130.1 -112.4 -160.0 -180.3 -157.5 -101.9 -162.4 -173.9

Net Invisibles US$ Bn 115.2 116.2 107.9 97.1 111.3 123.0 132.8 128.0 143.5 151.2

Current Account Deficit US$ Bn -32.4 -27.9 -22.2 -15.3 -48.7 -57.3 -24.7 26.1 -18.8 -22.7

CAD (% of GDP) % -1.7 -1.4 -1.1 -0.7 -1.8 -2.1 -0.9 1.0 -0.6 -0.6

Capital Account Balance US$ Bn 48.8 90.0 41.1 36.5 91.4 54.4 83.2 56.5 71.5 80.0

Dollar-Rupee (Average) 60.5 61.2 65.5 67.1 64.5 69.9 70.5 72-76 70-74 68-73

Source: RBI, CSO, CGA, Ministry of Agriculture, Ministry of commerce, Bloomberg, PhillipCapital India Research


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I Ban

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AXIS

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83

33

14

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Mut

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nce

NBFC

1,2

78

513

7

9,45

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4,56

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7,52

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6

3

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8

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Shrir

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FC 1

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5,78

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7 7

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5 1

5 1

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1.6

4

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Chol

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inNB

FC 5

32

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5

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0 6

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7 1

28

154

2

6 2

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LIC H

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ance

NBFC

430

2

17

60,

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67,

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823

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Mah

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09

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5

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Man

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164

1

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504

49,

348

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35,

539

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336

24

28

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Shrir

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100

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1 1

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73

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8.8

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Repc

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ce

NBFC

347

2

2 5

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6.7

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ICIC

I Lom

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NBFC

1,4

71

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1

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4,89

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HDFC

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52

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Nipp

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11

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Mag

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Hind

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76

2,6

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JSW

Ste

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s 4

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2,4

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4 8

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1

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1.7

6

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5.9

1

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4.2

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1

Veda

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Met

als

221

8

23

9,5

6,17

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281

2,9

3,23

0 3

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96,

190

97,

933

26

26

23

2

8.6

8

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1.4

1

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4.3

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4 1

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Tata

Ste

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1

5,39

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1

5,26

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2

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876

2,8

6,77

1 1

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348

1,0

1,94

3 8

6 8

5 3

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8

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8.5

0

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0.9

5

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5.1

1

1.2

10.

1 8

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8.1

Hind

alco

Met

als

330

7

42

14,

39,4

55

14,

75,6

83

1,9

6,15

4 2

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683

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263

76,

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32

35

33

6

10.

2 9

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0

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6.3

5

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10.

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8

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NMDC

Met

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134

3

93

1,6

2,08

9 1

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85,

538

75,

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64,

161

55,

566

22

19

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6.1

7

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1.2

1

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4.3

4

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19.

9 1

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20.

3 1

6.3

Jinda

l Ste

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pow

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etal

s 3

18

324

4

,41,

429

4,3

0,13

1 1

,36,

413

1,2

6,03

0 5

1,97

5 4

4,39

1 5

1 4

4 -6

-1

5 6

.2

7.3

0

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0.7

3

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3.7

1

2.1

9.4

1

1.3

9.7

SAIL

Met

als

73

301

7

,70,

648

7,8

0,30

7 1

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344

1,3

6,89

9 6

6,84

1 5

8,09

0 1

6 1

4 8

4 -1

3 4

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0

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0.5

4

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1

2.9

10.

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9.9

Phill

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Uni

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CMP

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Cap

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(`

mn)

PAT (

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S Gr

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(%)

P/E

(x)

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(x)

EV/E

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A (x

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OE (%

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CE (%

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Nam

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FY22

EFY

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FY22

EFY

23E

FY22

EFY

23E

FY22

EFY

23E

FY22

EFY

23E

FY22

EFY

23E

FY22

EFY

23E

FY22

EFY

23E

FY22

EFY

23E

FY22

EFY

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NALC

OM

etal

s 5

9 1

09

89,

804

- 1

2,03

7 -

6,5

88

- 4

-

33

- 1

6.6

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.1

- 7

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- 6

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- 5

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-

Penn

ar In

ds.

Met

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21

3

19,

385

21,

583

1,6

22

1,9

57

360

5

62

3

4

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5

6 8

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5.2

0

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4

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3.9

5

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7.5

8

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10.

6

Lars

en &

Toub

roCa

p Go

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1,5

14

2,1

26

15,

48,5

28

17,

24,9

32

1,7

5,61

8 2

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559

88,

251

1,0

6,31

4 6

3 7

5 2

9 2

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2.4

1

8.7

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3 1

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Siem

ens

Cap

Good

s 1

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6

83

1,2

7,31

9 1

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640

15,

172

17,

490

11,

175

12,

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36

48

13

61.

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6.6

6

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42.

5 3

6.3

10.

8 1

1.2

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0.4

ABB

Indi

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p Go

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1,4

71

312

6

6,34

8 7

5,94

3 4

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6

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3

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5

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1

7 2

4 8

4 4

2 8

5.4

60.

2 8

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7.2

5

9.3

42.

1 9

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12.

0 9

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12.

1

Bhar

at E

lectr

onics

Cap

Good

s 1

40

341

1

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155

1,6

8,06

5 3

2,10

9 3

5,08

0 2

1,41

8 2

3,60

4 9

1

0 2

2 1

0 1

5.9

14.

5 2

.8

2.5

9

.9

8.7

1

8.7

18.

4 1

9.4

19.

1

BHEL

Cap

Good

s 5

3 1

86

2,4

8,26

0 2

,72,

203

15,

300

18,

694

7,7

94

11,

230

2

3

-227

4

4 2

3.9

16.

6 0

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0.6

7

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4.3

2

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3.7

2

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3.3

Cum

min

s Ind

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p Go

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884

2

45

52,

628

58,

578

7,4

65

8,7

62

7,0

56

8,1

17

25

29

16

15

34.

7 3

0.2

5.2

4

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30.

7 2

5.8

15.

6 1

6.8

14.

3 1

5.7

Ther

max

Cap

Good

s 1

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1

67

53,

768

63,

742

4,4

21

5,5

31

3,2

17

4,0

76

27

34

32

27

51.

8 4

0.9

4.8

4

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35.

8 2

8.7

9.3

1

0.8

8.9

1

0.3

KEC

Inte

rnat

iona

lCa

p Go

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461

1

18

1,4

0,93

9 1

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935

13,

418

15,

131

6,6

94

7,8

68

26

31

24

18

17.

7 1

5.1

3.1

2

.6

10.

6 9

.3

17.

3 1

7.4

12.

8 1

3.4

Kalp

atar

u po

wer

Cap

Good

s 3

97

59

1,3

8,39

4 1

,49,

007

14,

707

17,

076

4,9

79

7,1

24

33

48

5

43

11.

9 8

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1.3

1

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4.9

3

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11.

3 1

4.2

11.

0 1

3.9

Engi

neer

s Ind

iaCa

p Go

ods

83

52

31,

843

30,

442

3,7

75

4,3

23

3,9

48

4,2

57

7

8

13

8

11.

8 1

0.9

2.3

2

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8.3

7

.1

20.

4 2

0.6

23.

8 2

3.8

Bhar

at D

ynam

icsCa

p Go

ods

363

6

6 2

7,82

3 3

9,19

9 5

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8

,048

4

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6

,291

2

4 3

4 1

6 4

1 1

4.9

10.

6 2

.1

1.9

8

.3

6.6

1

4.3

17.

6 1

3.9

17.

3

Coch

in S

hipy

ard

Cap

Good

s 3

82

50

40,

139

39,

129

7,4

86

5,6

48

6,4

22

4,4

06

49

33

20

-31

7.8

1

1.4

1.1

1

.0

5.7

8

.1

14.

1 9

.2

13.

0 8

.6

GE T&

DCa

p Go

ods

132

3

4 3

3,54

1 3

9,91

0 1

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3

,326

5

38

1,8

20

2

7

-4,2

26

238

6

2.9

18.

6 3

.3

2.8

2

0.3

10.

4 5

.2

15.

2 7

.0

17.

0

Praj

Inds

.Ca

p Go

ods

182

3

3 1

4,40

1 1

8,81

9 1

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2

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9

38

1,5

05

5

8

65

60

35.

5 2

2.2

4.2

3

.8

25.

1 1

5.7

11.

9 1

6.9

12.

1 1

7.6

VA Te

ch W

abag

Cap

Good

s 2

61

16

26,

626

31,

548

2,1

67

2,7

90

1,1

28

1,5

43

18

25

57

37

14.

4 1

0.5

1.1

1

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7.6

6

.0

7.7

9

.7

6.7

8

.1

Ultra

tech

Cem

ent

Cem

ent

6,6

38

1,9

14

5,3

6,81

8 6

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732

1,2

6,67

7 1

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416

64,

487

77,

420

223

2

68

39

20

29.

7 2

4.7

3.9

3

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15.

4 1

3.3

13.

1 1

3.7

11.

0 1

2.4

Shre

e Ce

men

tCe

men

t 2

7,70

2 9

99

1,7

0,63

1 1

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989

46,

492

50,

859

26,

191

27,

893

726

7

73

42

6

38.

2 3

5.8

5.8

5

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20.

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Ambu

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90

575

2

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24,

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2.4

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9.8

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4 -

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ACC

Cem

ent

1,7

88

336

1

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1,6

3,25

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Dalm

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JK C

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Star

Cem

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Cem

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100

4

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Phill

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Uni

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CMP

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Cap

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PAT (

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FY22

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FY22

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FY22

EFY

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FY22

EFY

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FY22

EFY

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FY22

EFY

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FY22

EFY

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FY22

EFY

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JK La

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ent

Cem

ent

429

5

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3

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Indi

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Cem

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172

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Disclosures and Disclaimers

PhillipCapital (India) Pvt. Ltd. has three independent equity research groups: Institutional Equities, Institutional Equity Derivatives and Private Client Group. This report has been prepared by Institutional Equities Group. The views and opinions expressed in this document may or may not match or may be contrary at times with the views, estimates, rating, target price of the other equity research groups of PhillipCapital (India) Pvt. Ltd.

This report is issued by PhillipCapital (India) Pvt. Ltd. which is regulated by SEBI. PhillipCapital (India) Pvt. Ltd. is a subsidiary of Phillip (Mauritius) Pvt. Ltd. References to "PCIPL" in this report shall mean PhillipCapital (India) Pvt. Ltd unless otherwise stated. This report is prepared and distributed by PCIPL for information purposes only and neither the information contained herein nor any opin-ion expressed should be construed or deemed to be construed as solicitation or as offering advice for the purposes of the purchase or sale of any security, investment or derivatives. The information and opinions contained in the Report were considered by PCIPL to be valid when published. The report also contains information provided to PCIPL by third parties. The source of such information will usually be disclosed in the report. Whilst PCIPL has taken all reasonable steps to ensure that this information is correct, PCIPL does not offer any warranty as to the accuracy or completeness of such information. Any person placing reliance on the report to undertake trading does so entirely at his or her own risk and PCIPL does not accept any liability as a result. Securities and Derivatives markets may be subject to rapid and unexpected price movements and past performance is not necessarily an indication to future performance.

This report does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. Investors must undertake independent analysis with their own legal, tax and financial advisors and reach their own regarding the appropriateness of investing in any securities or investment strategies discussed or recommend-ed in this report and should understand that statements regarding future prospects may not be realized. In no circumstances it be used or considered as an offer to sell or a solicitation of any offer to buy or sell the Securities mentioned in it. The information contained in the research reports may have been taken from trade and statistical services and other sources, which we believe are reliable. PhillipCapital (India) Pvt. Ltd. or any of its group/associate/affiliate companies do not guarantee that such information is accurate or complete and it should not be relied upon as such. Any opinions expressed reflect judgments at this date and are subject to change without notice

Important: These disclosures and disclaimers must be read in conjunction with the research report of which it forms part. Receipt and use of the research report is subject to all aspects of these disclosures and disclaimers. Additional information about the issuers and securities discussed in this research report is available on request.

Certifications: The research analyst(s) who prepared this research report hereby certifies that the views expressed in this research report accurately reflect the research analyst’s personal views about all of the subject issuers and/or securities, that the analyst have no known conflict of interest and no part of the research analyst’s compensation was, is or will be, directly or indirectly, related to the specific views or recommendations contained in this research report. The Research Analyst certifies that he /she or his / her family members does not own the stock(s) covered in this research report.

Independence: PhillipCapital (India) Pvt. Ltd. has not had an investment banking relationship with, and has not received any compensation for investment banking services from, the subject issuers in the past twelve (12) months, and PhillipCapital (India) Pvt. Ltd does not anticipate receiving or intend to seek compensation for investment banking services from the subject issuers in the next three (3) months. PhillipCapital (India) Pvt. Ltd is not a market maker in the securities mentioned in this research report, although it or its affiliates may hold either long or short positions in such securities. PhillipCapital (India) Pvt. Ltd does not hold more than 1% of the shares of the company(ies) covered in this report.

Suitability and Risks: This research report is for informational purposes only and is not tailored to the specific investment objectives, financial situation or particular requirements of any individual recipient hereof. Certain securities may give rise to substantial risks and may not be suitable for certain investors. Each investor must make its own determination as to the appropriateness of any securities referred to in this research report based upon the legal, tax and accounting considerations applicable to such investor and its own investment objectives or strategy, its financial situation and its investing experience. The value of any security may be positively or adversely affected by changes in foreign exchange or interest rates, as well as by other financial, economic or political factors. Past performance is not necessarily indicative of future performance or results.

Sources, Completeness and Accuracy: The material herein is based upon information obtained from sources that PCIPL and the research analyst believe to be reliable, but neither PCIPL nor the research analyst represents or guarantees that the information contained herein is accurate or complete and it should not be relied upon as such. Opinions expressed herein are current opinions as of the date appearing on this material and are subject to change without notice. Furthermore, PCIPL is under no obligation to update or keep the information current.

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Caution: Risk of loss in trading/investment can be substantial and even more than the amount / margin given by you. Investment in securities market are subject to market risks, you are requested to read all the related documents carefully before investing. You should carefully consider whether trading/investment is appropriate for you in light of your experience, objectives, financial resources and other relevant circumstances. PhillipCapital and any of its employees, directors, associates, group entities, or affiliates shall not be liable for losses, if any, incurred by you. You are further cautioned that trading/investments in financial markets are subject to market risks and are advised to seek independent third party trading/investment advice outside PhillipCapital/group/associates/affiliates/directors/employees before and during your trading/investment. There is no guarantee/assurance as to returns or profits or capital protection or appreciation. PhillipCapital and any of its

employees, directors, associates, and/or employees, directors, associates of PhillipCapital’s group entities or affiliates is not inducing you for trading/investing in the financial market(s). Trading/Investment decision is your sole responsibility. You must also read the Risk Disclosure Document and Do’s and Don’ts before investing.

Kindly note that past performance is not necessarily a guide to future performance.

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IMPORTANT DISCLOSURES FOR U.S. PERSONSThis research report is a product of PhillipCapital (India) Pvt. Ltd. which is the employer of the research analyst(s) who has prepared the research report. PhillipCapital (India) Pvt Ltd. is authorized to engage in securities activities in India. PHILLIPCAP is not a registered broker-dealer in the United States and, therefore, is not subject to U.S. rules regarding the preparation of research reports and the independence of research analysts. This research report is provided for distribution to “major U.S. institutional investors” in reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”). If the recipient of this report is not a Major Institutional Investor as specified above, then it should not act upon this report and return the same to the sender. Further, this report may not be copied, duplicated and/or transmitted onward to any U.S. person, which is not a Major Institutional Investor.Any U.S. recipient of this research report wishing to effect any transaction to buy or sell securities or related financial instruments based on the information provided in this research report should do so only through Rosenblatt Securities Inc, 40 Wall Street 59th Floor, New York NY 10005, a registered broker dealer in the United States. Under no circumstances should any recipient of this research report effect any transaction to buy or sell securities or related financial instruments through PHILLIPCAP. Rosenblatt Securities Inc. accepts responsibility for the contents of this research report, subject to the terms set out below, to the extent that it is delivered to a U.S. person other than a major U.S. institutional investor.The analyst whose name appears in this research report is not registered or qualified as a research analyst with the Financial Industry Regulatory Authority (“FINRA”) and may not be an associated person of Rosenblatt Securities Inc. and, therefore, may not be subject to applicable restrictions under FINRA Rules on communications with a subject company, public appearances and trading securities held by a research analyst account.Ownership and Material Conflicts of InterestRosenblatt Securities Inc. or its affiliates does not ‘beneficially own,’ as determined in accordance with Section 13(d) of the Exchange Act, 1% or more of any of the equity securities mentioned in the report. Rosenblatt Securities Inc, its affiliates and/or their respective officers, directors or employees may have interests, or long or short positions, and may at any time make purchases or sales as a principal or agent of the securities referred to herein. Rosenblatt Securities Inc. is not aware of any material conflict of interest as of the date of this publicationCompensation and Investment Banking Activities Rosenblatt Securities Inc. or any affiliate has not managed or co-managed a public offering of securities for the subject company in the past 12 months, nor received compensation for investment banking services from the subject company in the past 12 months, neither does it or any affiliate expect to receive, or intends to seek compensation for investment banking services from the subject company in the next 3 months.Additional DisclosuresThis research report is for distribution only under such circumstances as may be permitted by applicable law. This research report has no regard to the specific investment objectives, financial situation or particular needs of any specific recipient, even if sent only to a single recipient. This research report is not guaranteed to be a complete statement or summary of any securities, markets, reports or developments referred to in this research report. Neither PHILLIPCAP nor any of its directors, officers, employees or agents shall have any liability, however arising, for any error, inaccuracy or incompleteness of fact or opinion in this research report or lack of care in this research report’s preparation or publication, or any losses or damages which may arise from the use of this research report.PHILLIPCAP may rely on information barriers, such as “Chinese Walls” to control the flow of information within the areas, units, divisions, groups, or affiliates of PHILLIPCAP.Investing in any non-U.S. securities or related financial instruments (including ADRs) discussed in this research report may present certain risks. The securities of non-U.S. issuers may not be registered with, or be subject to the regulations of, the U.S. Securities and Exchange Commission. Information on such non-U.S. securities or related financial instruments may be limited. Foreign companies may not be subject to audit and reporting standards and regulatory requirements comparable to those in effect within the United States.The value of any investment or income from any securities or related financial instruments discussed in this research report denominated in a currency other than U.S. dollars is subject to exchange rate fluctuations that may have a positive or adverse effect on the value of or income from such securities or related financial instruments. Past performance is not necessarily a guide to future performance and no representation or warranty, express or implied, is made by PHILLIPCAP with respect to future performance. Income from investments may fluctuate. The price or value of the investments to which this research report relates, either directly or indirectly, may fall or rise against the interest of investors. Any recommendation or opinion contained in this research report may become outdated as a consequence of changes in the environment in which the issuer of the securities under analysis operates, in addition to changes in the estimates and forecasts, assumptions and valuation methodology used herein. No part of the content of this research report may be copied, forwarded or duplicated in any form or by any means without the prior written consent of PHILLIPCAP and PHILLIPCAP accepts no liability whatsoever for the actions of third parties in this respect.PhillipCapital (India) Pvt. Ltd.Registered office: 18th floor, Urmi Estate, Ganpatrao Kadam Marg, Lower Parel (West), Mumbai – 400013, India.

Mr Krishan - ENC Software Solutions (P) Limited - PhillipCapital

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