Domestic brokerage IIFL Securities has identified 31 stocks from the manufacturing sector, which it called promising. The domestic brokerage said it anticipates continuing policy focus on manufacturing and related reforms following the formation of a stable coalition government. Global themes such as increased power demand, green energy transition, supply chain diversification, and the need for water conservation and waste reduction, will provide additional spurs to India’s manufacturing prospects, it anticipated.
IIFL likes Timken India Ltd and Ingersoll-Rand India Ltd among industrial equipment makers; Action Construction Equipment Ltd, Shriram Pistons & Rings Ltd and Sharda Motor Industries Ltd among auto component makers; KEI Industries and Apar Industries Ltd among power T&D equipment makers; and Triveni Turbine Ltd and Praj Industries Ltd among heavy engineering companies.
Garden Reach Shipbuilders Ltd, Zen Technologies Ltd and Avantel Ltd are a few defence and space stocks that it likes. Ratnamani Metals & Tubes Ltd, JTL Industries and Roto Pumps Ltd are some pumps & pipes companies it likes. Water treatment players such as Ion Exchange and Jash Engineering and textile player KPR Mills are a few other stocks that IIFL Securities finds promising.
"Most of these companies are market leaders in niche segments they operate in, enjoying multiple macro tailwinds above, undergoing capacity/product expansion, and with low debt. The 31 identified cos have average FY24/FY26 PE of 52.8/29.4 times; FY19-24 EPS CAGR of 31 per cent; ROE of 20 per cent," it said.
IIFL said some of the companies suggested solid growth guidance with high trailing valuations. They included Action Construction Equipment (15-20 per cent for FY25), Fiem Industries (12-15 per cent, FY25), KEI Equipment (16-17 per cent for next 2 years), Apar Industries (15-20 per cent for FY25 and Garden Reach Shipbuilders (20-25 per cent for next 2 years.
IIFL Securities considered companies with over Rs 1,500 crore market cap and excluded top 200 companies from its research.
The brokerage said reforms like PLI, direct & indirect tax concessions (though concessional corp. tax rate of 15 per cent for new manufacturing cos not extended in Budget 2024), promoting indigenisation, subsidies (both by states & centre), FTA negotiations, factor reforms (setting industrial parks, easing land and labour laws) and encouraging FDI will likely see continuity and probably scope expansion.
"Budget'24 mfg. highlights include a continued higher allocation to capex, PLI schemes expanded to toys & footwear industry, employment linked incentives, industrial parks, MSME support, and financial assistance for state infrastructure," it said.