Top 5 Manufacturing Stocks to Add to Your Watchlist

From the National Manufacturing Policy, aiming to increase the share of manufacturing in GDP to 25% by 2025, to the PLI scheme for manufacturing, the government is leaving no stone unturned in its endeavor to develop the core manufacturing sector at par with global manufacturing standards. unanswered.

Moreover, the apparent global shift towards India will take the sector to new heights.

For the past few decades, American and European companies have invested heavily in China, attracted by its low labor and production costs and the considerable and growing size of its domestic consumer market. However, the tide is changing.

China still remains important to global value chains, but companies are slowly turning their attention to countries like India. From textiles to consumer electronics, every industry is moving fast to start their operations in India.

Recent developments testify to the growing confidence in India as a manufacturing hub in Asia. it is included Apple Inc’s decision to manufacture its iPhone 14 in IndiaAmazon’s decision to set up its first production line for its TV Firestick in India, and IKEA’s plans for a 48,000-square-metre shopping center in the northern region.

The country’s largest luggage manufacturer VIP Industries is also gradually sourcing its raw materials from China to India, while ramping up its domestic manufacturing space.

All this, coupled with rising disposable income of a growing population and rapid adoption of e-commerce, provides a huge opportunity for India to become a major manufacturing hub.

In this nascent sector, top companies play a major role and are all set to scale new heights. And so keeping this in mind, we have handpicked five such companies using Equitymaster Indian Stock Screener,

#1 RSWM

At the top of our list, we have RSWM.

RSWM is a textile company that operates in three primary segments including Yarn, Denim and Knitted Fabrics.

The company caters to domestic and international markets with exports accounting for over 35% of total revenue in FY2022.

The company has grown its sales and net profit at a CAGR of 5% and 18.9% in the last five years.

While the share price had performed well over the past few years, it has fallen in 2022, in line with peer companies and overall market sentiment. after reaching all its time 346, the stock has fallen 154.

In the past year, the Indian cotton textile industry faced several challenges. Higher price volatility and higher absolute raw material prices have eroded margins. The relative price differential has led to a massive competitive disadvantage for most Indian textile companies as compared to international markets.

In addition, geopolitical tensions, strengthening of the dollar, delay in EU/UK FTA and subdued demand due to inflation in European and US economies have further reduced profitability.

But now, cotton prices which peaked in Q2 FY2023 are stabilizing on the start of new crop arrivals. Companies are expecting a further fall in cotton prices, which could boost their margins. While demand may remain buoyant in the near term, long-term prospects are strong.

Rising disposable income, ever-changing fashion trends and China plus one strategy act as some of the major tailwinds for the industry. And RSWM is set to benefit from it.

have invested around the company 4.1 billion (bn) in denim, cotton melange yarn, knit business, and expansion of modernization and balancing equipment in all units. In addition it plans to invest 3.1 billion in FY2024 to expand spinning capacity.

The stock is trading at a price to earnings ratio (PE) of 3.8 times, which is 52 per cent lower than its 10-year average PE of 8 times.

#2 Trishul

Next on our list is the Trident.

Trident, a textiles player, caters to three primary segments including bed and bath linen (58% of total revenue in the December quarter ending 2023), yarn (29%), and paper (13%).

Over the years, the company has transformed itself from a yarn manufacturer to a vertically integrated home textile player. This change has helped the company to increase margins and create demand for higher margin products.

While sales grew at a CAGR of 8.4% over the past five years, net profit grew by 9.3%.

2018-2022 share price increased 10x after great business performance. But in 2022, things took a turn for the worse. Due to poor performance, the stock has fallen by 50 percent.

Rising input costs and poor demand dented profits, affecting business. In the first nine months of FY2023, the company reported a decline in capacity utilization and consequently a decline in sales and profits.

While this was an industry-wide issue, Trident underwent a change of guard during this time, adding insult to injury. Its founder and chairman resigned as director and non-executive chairman, citing health issues and family obligations.

Despite all the difficulties, the company is moving ahead with its capacity expansion plan. they plan to spend 21.5 billion in 2023 alone, to be financed through a mix of debt and equity.

The stock is trading at 33x PE, which is 1.4x premium to its 10-year average PE of 13.5x.

#3 Dixon Technologies

Third on our list is Dixon Technologies.

Dixon is a multinational electronics manufacturing and service company. Its core competence lies in the manufacturing of daily used consumer electronics such as televisions, washing machines, smartphones, LED bulbs, battens, downlighters and CCTV security systems.

While the company has not developed a brand of its own, it has long-term contracts with some of the most well-known brands; Samsung, Xiaomi, Panasonic, OnePlus and Philips, giving them a huge edge.

Except for 2022, the share price remains on fire. From 2018-2022, the stock increased ninefold. And the stellar performance of the company is reflected in the parabolic movement of its stock price.

While revenue has grown 3.5x, profits have tripled in the last five years. The RoE in FY2022 stands at 19.3%.

Despite expansion in a highly capital-intensive industry, Dixon Technologies has avoided accumulating debt on its books. The debt to equity ratio in FY22 was 0.3x.

The company reported weak numbers for the quarter ending December 2022 where sales fell 36% and profits dropped 34% compared to the previous quarter.

This was led by slow progress in the mobile market and weak performance in the consumer electronics and lighting industries. The share price fell more than 20% after the results were announced.

Another reason Dixon Technologies’ share price fell was weak revenue guidance by management. they cut sales guidance 127 billion for FY2023 150 billion years ago. The change was due to weakness in the mobile segment and sluggish demand, apart from falling realizations in other key divisions.

However, the company is adding new customers from the Middle East, making this the next phase of business growth.

It also expects sales recovery led by ramp-up in production linked incentives (PLIs) with significant growth from new segments such as refrigerators, wearables, IT etc.

#4 Bharat Forge

Bharat Forge, the flagship company of the Kalyani Group, is the largest forging company.

Bharat Forge is a leading supplier of critical forged and machined components to vehicle manufacturers and other industries such as aerospace, mining, oil and gas, marine and power.

A major portion of the company’s revenue (59% in FY2022) comes from exports. The company caters to North America (US and Mexico), South America (Brazil), Europe and Asia Pacific.

In the domestic auto market, they cater to commercial and utility vehicles with major clients such as Tata Motors and Ashok Leyland.

Over the past five years, the company’s revenue has grown at a CAGR of 9.7%, while profit has grown at a CAGR of 8.3% for the same period.

The company has grown well in the past, but its next phase of growth is expected to come from its defense segment. While still small, the company has big plans for the defense sector. They are planning to expand their defense offerings to benefit from the push from the government towards indigenous procurement of defense equipment.

In November 2022, its subsidiary Kalyani Strategic Systems won an export order worth US$155.5 million (m) for the export of artillery gun systems. With significant growth in its order book and a healthy execution rate, the company is confident of this new era of strong growth.

#5 Gokaldas Exports

Last on our list is Gokaldas Exports.

Gokaldas is a leading manufacturer and exporter of readymade garments. Exports contribute more than 89% of total revenue, with the US accounting for more than 80% of total revenue.

The company’s long-term tie-ups with some of the leading global brands have contributed to the growth of its business. Sales have grown at a CAGR of 13.8% in the last five years and net losses have been turned into net profits.

Unlike other textile companies, Gokaldas can pass on rising raw material prices to the end consumer in 2023. This is because the company exports readymade garments.

While most players reported a steep decline in sales and profits in their latest quarterly results, Gokaldas reported a marginal decline of 1% in sales and 12% in profits. It tells about the company’s ability to run the business through tough times.

Unlike its peers, the stock hasn’t fallen much, down just 16% from its 2022 peak 488. The stock trades at a PE multiple of 13.6x, which is 17% lower than its 10-year average of 16.4x.

Snapshot of best manufacturing stocks in India equitymaster stock screener

Here is a quick view of the above construction companies based on important financial data.

Please note that these parameters can be changed as per your selection criteria.

This will help you identify and eliminate stocks that are not meeting your requirements and emphasize stocks that are well within the metrics.

So here it is… manufacturing stock India’s upcoming capex construction cycle can create wealth.

happy investing.

Disclaimer: This article is for information purposes only. This is not a stock recommendation and should not be treated as such.

This article is syndicated equitymaster.com