PLI scheme for textiles: which stocks can get rerated as govt clears the scheme?

The Indian government has approved the production-linked incentive (PLI) scheme for the textile sector for almost a dozen categories in a move that would boost domestic manufacturing and help local producers with an enhanced incentive structure.

The PLI scheme for textiles is part of the announcement made earlier during the Union Budget 2021-22, with an outlay of Rs 1.97 lakh crore.

What is the PLI scheme all about?

The PLI scheme for textiles seeks to promote production of high-value man-made fibre (MMF) fabric, garments and technical textiles in country. The incentive structure has been formulated to help the industry to invest in fresh capacities in these segments.

It would capture investments under two categories — one dealing with companies willing to invest minimum Rs. 300 crore in plant, machinery, equipment, and civil works (excluding land and administrative building cost) to produce items under the notified lines (MMF fabrics, garment and technical textiles).
In the second part, any company willing to invest minimum Rs. 100 crore shall be eligible to apply for participation.

The government expects that, over a period of five years, the PLI scheme for textiles will lead to fresh investment of over Rs 19,000 crore and result in cumulative turnover of over Rs. 3 lakh crore.

Which textile stocks to punt on?

The move, which was anticipated, fired up textile stocks on Thursday but analysts believe the counters can keep buzzing for a while. 

Sumeet Bagadia of Choice Broking said that one can buy Arvind Ltd at the current market price for target up to Rs. 110 to Rs. 115, maintaining stop loss at Rs. 90 a share. “Similarly, one can buy Raymond shares at current market price for short-term target of Rs 480 to Rs 500 maintaining a stop loss at Rs 410,” he added.

Mudit Goel of SMC Global Securities said: “One can initiate momentum buy in Grasim shares for the short-term target of Rs 1,640, maintaining stop loss at Rs 1,550.”

Gaurav Garg of CapitalVia Global also favoured Raymond and added that one can also look at KPR Mill.
Raymond has been able to generate good cash flow from operations last year, and with the PLI scheme the stock is expected to perform well.

KPR Mill, which has been able to maintain consistent revenue as well as operating profit margin growth, is another counter to see action.

Among others, Welspun India, Siyaram Silk Mills, Alok Industries, Ambika Cotton Mills and others may benefit, according to Sandeep Matta of TRADEIT Investment Advisor.

Rajiv Kapoor of Trustline also picked Arvind, Raymond, Grasim, Welspun and KPR Mill. He added that Bombay Dyeing, Bombay Rayon Fashions, Nitin Spinners and Gokaldas Exports are among the other likely beneficiaries.