With a total incentive outlay of ~USD 35 bn during the life of all 15 announced PLI schemes, we estimate total incremental sales to be in the range of USD 470-500 bn, attracting a total investment of ~USD 62 bn and directly generating ~3.1 mn jobs. While India's nominal GDP increase of ~49% in the last five years is an encouraging development, it is worth highlighting that this growth has come at the expense of growing reliance on Chinese imports. India's imports from China have grown from USD 61bn in FY17 to USD 93bn in FY22, accounting for 16% of overall imports on average over this period. Currently, the key goods imported from China are mainly electronic goods, mechanical appliances, and chemicals. In the wake of pandemic-led global supply chain disruptions, India has realised the importance of reducing its dependence on China and creating a self-sustaining manufacturing ecosystem. The Production Linked Incentive (PLI) is the government's flagship fiscal response to the country's rising import dependence, which aims to boost the country's manufacturing sector from 15-17% of the total GDP at present to a target of 25%.
While these new age companies presently account for only 3% of total revenue, given targeted white spaces their share could reach 8-10% in the next few years, which can potentially slice off 100-200bps of growth for incumbents. For new age brands with critical scale in terms of income levels, ease of distribution, and funding, a flywheel effect is in motion. While the majority of these individual brands will likely not scale beyond a certain point, a long tail of brands will emerge. In comparison to other sectors, the FMCG sector has historically been more resilient to external challenges, leading to strong earnings (12.5% CAGR) and valuation rerating (2x) in the last two decades. Earnings traction was steady, driven by (1) share gains from regional/small players, (2) distribution expansion (particularly in rural areas), (3) consistent success with brand extensions, (4) high brand recall to drive premiumisation, and (5) outsourcing to help deploy funds to increase competitiveness. Top-tier mainstream companies have had a smooth ride, boosting investor confidence in earnings visibility. However, in the evolving competitive landscape, we remain sceptical about sustaining these drivers/assumptions. D2C/New age consumer brands are far more disruptive/ agile than traditional/regional competition. Established incumbents are no longer protected by entry barriers (distribution and brand), resulting in a level playing field and category fragmentation - a structural trend.
Issue Snapshot: Issue Open: Dec 21 Dec 23, 2021 Price Band: Rs. 205 216 *Issue Size: Rs 1100.0 cr (Entirely Offer for sale) Reservation for: QIB Upto 50% eq sh Non Institutional atleast 15% eq sh Retail atleast 35% eq sh Face Value: Rs 10 Book value: Rs 71.58 (Aug 31, 2021) Bid size: - 69 equity shares and in multiples thereof 100% Book built Issue CMS Info Systems Limited - IPO Note
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