ESDM Sector: a New Growth Area

ESDM Sector: A new growth area

We examine recent government initiatives taken to promote local production for electronics, incentivizing it with an outlay of Rs.500 bn, with a special emphasis on mobile phones - a real low hanging fruit. it also has only 1% market share in global mobiles giving it enough headroom in a market dominated by China and Vietnam. Among listed players, we believe Dixon can be a major beneficiary.

New government thrust to EMS ; focus on mobiles In India, electronics production has grown rapidly with a from Rs.1.9 tn in 2014-2015 to reach Rs.4.58 tn in 2018-2019 at a CAGR of around 25%. However, there has been no direct benefit for the domestic economy due to high reliance on imports at ~60%. Imports from countries like China and Vietnam are cheaper not only due to scale but also due to lower finance costs, logistics etc. As per industry estimates, the disadvantage is ~8-11% across various product. This is even higher in mobiles as ~80% of the smartphones manufactured in India are actually completely knocked-down units coming into the country and getting assembled. To address this, the government has come with a total incentive cap of Rs.500 bn ($6.7 bn) targeting production of Rs.8 tn ($107 bn), export at Rs.5.8 tn ($77 bn) and generating employment for more than 1 million people by 2025. To overcome the cost disadvantage, the Government has rolled out various policies including the production linked incentive scheme where the incentive of 4%-6% is applicable in the first five years, so that Indian manufacturing moves closer to a level playing field with global peers.

Gap in production mean opportunities for Indian manufacturers According to the MietY report, for the year 2017-2018, the global electronics production is estimated to by $2 tn, of which India’s electronics production was about $60 bn. The demand for electronics products is worth $106 bn. There is a wide deficit which has to be met through imports. This gap in production creates an opportunity for players to manufacture in India. The reduction in the imports that would arise from such a shift, would also reduce India’s forex outgo.

Expected market size Indian market for electronics goods is growing at a CAGR of about 27% and is expected to reach $400 bn by 2025 as per MietY report from $106 bn in 2017-2018. This estimate is considering a $5 tn economy by 2025. However, due to the pandemic led lockdowns, slowdowns and gradual recoveries, a more realistic number seems to be a $4 tn economy by 2025 from the current $2.8 tn, a CAGR of ~7%. Based on a similar share estimate for Vinod Chari electronics, our base case is of a $300-320 tn demand for electronics in Sr. Analyst 2025, which is 3x the market size of $106bn in 2017-2018. This would be a +9122 40969776 CAGR of 16%-17%. [email protected]

We acknowledge the contribution of Pranav Lala in the preparation of this report.

July 28, 2020

Exports at inflection point; can grow at 83% CAGR Exports is seen as a big opportunity, especially in mobiles where more than 290 million sets are being manufactured in India while only 36 million units are exported. The thrust on large scale manufacturing can create economies of scale, shift more focus to R&D, create a mobile ecosystem and thus significantly increase the exports from India. This also comes at an opportune time for India, when most global players are seriously considering a China+1 strategy in sourcing. As per E&Y, mobile exports from India are slated to grow at a 83% cagr from $1.6 bn in FY19 to $110 bn in FY26.

Most ingredients for scale manufacturing in place India has ample land for a player to set up a manufacturing base at a low cost. The labour cost in India is low compared to developed markets and most developing markets. There is more political stability compared to most emerging countries. The Government’s focus on improving ease of doing business in India is providing comfort to foreign players to set up a base in India. Finally, the Government’s incentive given to manufacturing to close down the disability gap between India and countries that are manufacturing hubs, in quest for a level playing field is setting in motion India’s script of becoming a big global export country.

New policies set to be more impactful than previous ones We believe that the new policies are more primed for success than the previous ones. India has evolved as an important market for not just the hardware (i.e. smartphones), but is also a significant end-user market for the software (i.e. Apps). For most global tech players, India has become a key market. With China having turned its back on them, the second populous nation in the world is a “must have” for them. This is amplified by the capital commitment players like Google, Amazon, Facebook etc. are planning in India. This coupled with investment of the hardware majors like Apple and Samsung, can create the desirable ecosystem for the success of EMS in India.

Dixon can offer a direct listed play on the above theme From a market perspective, Dixon can offer a direct listed play (on the above theme. It is already an established player, assembling phones for brands like Samsung, Panasonic and Gionee. What gives us more confidence on Dixon’s prospects is the fact that the government has incentivized the sub $200 cost phones only for domestic manufacturers. ~75% of the domestic mobile market in India is the sub $200 phone market.

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Key Charts

India Electronics Profile 2017-2018 ($ bn) Breakup of Electronics Production in India

LED Products Consumer Demand 106 Electronic 3% Electronics Components 17% Production 60 15% Strategic Imports 53 Electronics 6% Industrial Electronics Exports 6.4 18%

Demand 2025E 400 Mobile Computer Phones Hardware 37% 0 100 200 300 400 500 4% Source: NPE, MeitY Source: MeitY Annual Report

Import Share India smartphone market share (Q1 2020) Japan Others 2.8% 13.7% Others Germany China 11% Xiaomi 3.2% 39.3% 30% United Realme States of 14% America 4.3% Singapore Oppo 5.7% 12% Korea, Republic of Hong Kong, Vivo 5.8% Vietnam China Samsung 17% 7.9% 17.3% 16% Source: International Trade Centre Source: Counterpoint Research

Mobile Handsets Manufactured in India (Mn) Mobile Phones as % of total Electronics Production 310 290 40 37 34 280 35 250 225 28 220 30 190 175 25 22 160 20 130 110 100 15 60 10 70 10 40 5 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 Source: MeitY policy presentation Source: MeitY Annual Report

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Mobile Phones Exported from India (Value Mobile phones export ($ bn) Wise)-Country Share % Others 120 110 USA 19% 100 3% 80 64.8 NETHERLANDS 60 3% 31.43 UAE 40 22 TURKEY 15 53% 20 7.86 4% 1.6 3.57 SOUTH 0 AFRICA

5% RUSSIA

2018-19

2019-20E

2020-21E

2021-22E

2022-23E

2023-24E 2024-25E 13% 2025-26E Source: Export Import Data Bank Source: Based on a study undertaken by E&Y in collaboration with FICCI and ICEA

Labour Cost in India (US$/HR.) Favourable labour advantage over china for the next decade

50 700 Workforce aged 15-54 (mn people) 38 40.5 40 30.6 31.2 650 30 24 20.7 600 20 9.4 10 6.2 550 1.7 3.3

0 500

India

Japan

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

China

Mexico

Canada

S.Korea Taiwan

Germany India China Source: Global Competitive Index 2016 EY Source: E&Y report

Electronics as A % Of Total Imports (Value Wise) in India 11 10.4 10.4 10.0 10.1 10 9.4 9 8 7.4 6.5 7 6.1 6

2014-15 2018-19 2012-13 2013-14 2015-16 2016-17 2017-18

2019-20P Source: Export Import Data Bank

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Introduction When one thinks about the electronics sector in India, one usually thinks about imports. More so in terms of better quality and technology product at the same price point. What India majorly lacks in being a global electronic manufacturing hub is the R&D, control of supply chain, scale and quality. One more important factor that differentiates countries in global trade is the subsidies or incentives it receives from the Government. In this report we will examine the following: (a) The review of the ESDM (Electronic System Design & Manufacturing) sector (b) How the mobile phone sector can be a game changer for ESDM and India? (c) Stage set for manufacturing (d) Why incentivize? (e) Incentives announced by the Government to drive manufacturing and also target to put India in the same league as the big global trade players

The main growth trigger we examine will be the recent government initiatives taken to promote local production for electronics, incentivizing it with an outlay of Rs.500 bn, with a special emphasis on mobile phones.

(a) ESDM sector in India ESDM Overview The electronics sector has a strategic and economic importance in India, being a support function to multiple sectors. Indian electronics production has increased to Rs. 3,875 bn ($60 bn) in 2017-2018 from Rs. 1,904 bn ($25 bn) in 2014-2015, registering a CAGR of 26.7%. India’s share in the global electronics production is about 3%. The share of domestic electronics production in India’s GDP is 2.3% and employs over 13 mn people directly and indirectly. The demand for electronic products in India has grown from about $45 bn in 2008-09 to about $106 bn in 2017-18 The import of electronic goods was of the order of Rs. 3,445 bn ($53 bn) in 2017-18. The export of electronic goods was about $6.4 bn (Rs.415 bn) in 2017-2018.

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India Electronics Profile 2017-2018 (In $ bn)

Demand 106

Production 60

Imports 53

Exports 6.4

Demand 2025E 400

0 50 100 150 200 250 300 350 400 450 Source: NPE, MeitY

The demand for electronics is expected to rise to $400 bn (Rs.30 tn) by 2025 according to MeitY, based on the assumption of a $5 tn Indian economy. The growth potential has been shadowed by the requirement of large capital investments and keeping up with changing technologies coupled the heavy reliance of imports.

Mobile phones production constitutes 37% of the total electronics production in India. We expect this number to go up in the near future aided by Government manufacturing incentives and an attractive exports market.

Breakup of Electronics Production in India

LED Products Consumer Electronic 3% Electronics Components 17% 15%

Strategic Electronics 6% Industrial Electronics 18%

Mobile Phones Computer 37% Hardware 4% Source: MeitY Annual Report

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China dominates Indian electronic imports Chinese companies registered sales of Rs.1.4 tn ($18.7 bn) in the Indian electronics market in 2019 as they dominated the fast-growing categories of smartphones, televisions, laptops, and even smart bands and watches. (Source: https://bit.ly/2ZGVDzQ)

Import Share

Others Japan 13.7% 2.8% Germany China 3.2% 39.3% United States of America 4.3% Singapore 5.7%

Korea, Republic of 5.8% Hong Kong, China Vietnam 17.3% 7.9% Source: International Trade Centre

Four of the top five smartphone brands in India (Xiaomi, Vivo, Realme and Oppo) are from China, and accounted for almost 76 per cent share of the 32.5 million smartphones shipped in India in the March 2020 quarter (according to IDC data).

India smartphone market share (Q1 2020)

Others 11% Xiaomi 30% Realme 14%

Oppo 12%

Vivo Samsung 17% 16% Source: Counterpoint Research

# China's BBK Electronics sells under different brands including Vivo, Oppo, OnePlus & Realme.

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Chinese players have dominated the Indian market as they are able to provide superior quality/technology at the same price point as the Indian players.

This has been at the cost of Indian brands such as Micromax, Lava, Inetx and Karbonn, and MNCs from countries such as South Korea (Samsung and LG) and Japan (Sony). In 2019, the Chinese brands closed the year with a share of 71% in the revenue-intensive smartphones category, and this further increased to 81% in the first quarter (January-March) of 2020, according to number sourced from Counterpoint Research.

Q1FY21 position for Indian brands was lower than 1% share which ended at 1.6% in FY20.

India is the second-largest smartphone market after China and clocked a shipment of 152.5 million smartphones in 2019.

(b) How the mobile phone sector can be a game changer for ESDM and India? Mobiles are believed to be a huge opportunity with more than 290 million sets being manufactured in India while only 36 million units being exported as in FY19-20, more than double of the 17 million units exported in the previous year. $30bn worth of mobile handsets produced in 2019 compared to $3bn produced in 2014.

Mobile Handsets Manufactured in India (Units in Million) 310 290 280

250 225 220 190 175 160 130 110 100 70 60 40 2015 2016 2017 2018 2019 Source: MeitY policy presentation

The Government incentivizing manufacturing is making mobile phones manufacturing an attractive investment for investors. The result of which is that mobile phone manufacturing as a % of electronics production has almost quadrupled from 10% in 2015 to a leading 37% share.

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Mobile Phones as % of total Electronics Production

40 37 34 35

30 28

25 22 20

15 10 10

5 2015 2016 2017 2018 2019 Source: MeitY Annual Report

Mobile Phones Exported from India (Value Wise)-Country Share % Others 19% USA 3%

NETHERLANDS 3% UAE TURKEY 53% 4%

SOUTH AFRICA 5%

RUSSIA 13% Source: Export Import Data Bank

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Inflection point of mobile phone export boom The stage is set in India for increased production of mobile phones and based on an E&Y report, mobile phone exports from India is expected to rise at a CAGR of 83% over the next 7 years to $110 bn. We believe the reasons for this inflection point is the incentivisation led manufacturing boom, global supply chain diversification and improving ecosystem in India.

Mobile phones export ($ bn)

120 110

100

80 64.8 60

40 31.43 22 15 20 7.86 1.6 3.57 0 2018-19 2019-20E 2020-21E 2021-22E 2022-23E 2023-24E 2024-25E 2025-26E Source: Based on a study undertaken by E&Y in collaboration with FICCI and ICEA

Base of smartphone users in India Based on an ICEA report, India had 500 mn smartphone users in 2019 and this is expected to grow to 829 smartphone users by 2022. Several factors have contributed to this smartphone user growth, including increased affordability of mobile data, reduced smartphone prices, increase in number of rural users and deeper penetration of consumer finance options. (Source: https://bit.ly/3eKwnNq)

At the moment, over 80 per cent of the smartphones manufactured here are actually completely knocked-down units coming into the country and getting assembled. Players like Oppo, Xiaomi, and Vivo get a bulk of their phones manufactured and designed through firms like WingTech, Huaqin, Longcheer and others, which are primarily Chinese ODMs.

Increased affordability of mobile data The 2016 disruption in the telecom industry led to the price of a gigabyte (GB) of mobile data falling from Rs.152 to Rs.10 within a year, making mobile internet accessible to a much larger population of Indians than ever before. This change in mobile data pricing led to an equally exponential increase in average monthly data usage which increased at a CAGR of 129% between 2015 and 2018. India recorded the highest monthly data consumption in the world with 9.8 GB consumed per user and is predicted to double to 18 GB by 2024. (Source: ICEA)

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Affordable prices of smartphones A big factor contributing to the fall in smartphone prices is the adoption of open operating systems such as Android. The ability to re-distribute source code for free, and the typically significant ability to modify OS software, reduce development costs thereby driving down the overall prices of smartphones. These reduced barriers to entry and innovation have led to introduction of several entry level smartphone models dropping the lowest retail price to Rs.1,400 in 2018-19 from Rs.12,000 in 2008-09. Smartphone penetration in rural India has risen from 9% in 2015 to 25% in 2018. (Source: ICEA)

Global tech firms leading the way for investment in the Indian technology ecosystem Simply put, the largest single location user base that India can offer these players. With China having turned its back on them, the second populous nation in the world is a “must have” for them.

India is one of the largest markets for their products. Facebook has ~300mn users while WhatsApp has around 400mn users in India and still growing. It has increased its India bets through its investment of $5.7 bn in Reliance Jio. Amazon has announced an investment of $1 bn in India, taking their total investments to ~$6 bn. Google is the latest to announce a $10 bn investment in India over the next 5-7 years.

And what drives their investment is the increasing screen time and data usage in India. India has around 500mn broadband users with an average data consumption of 4GB a month. This consumption is expected to grow at a CAGR of 29% to 11GB a month. In an inverse manner, the data costs have come down heavily from Rs150/GB in 2016 to Rs10/GB in 2019.

Similarly, India has close to 500mn smartphone users and as per Ericsson Mobility Report of June 2020, it will have another 410mn smart phone users by 2025, a CAGR of 16%. The data consumption on smartphones is even more voluminous. As per the same Ericsson report, average data usage in smartphones is 12GB a month and expected to grow at a CAGR of 20% to 25GB a month in 2025.

This marriage of rising data penetration and low data costs presents a juicy market for all the major players to be monetised over a time. Amazon has Ecommerce as well as its OTT, Amazon Prime. Similarly, Facebook has WhatsApp and Instagram. Google, of course, has not just users for search and its browser Chrome but also has products like its UPI Gpay, channel like YouTube and services like Google maps to monetise. Not to mention, the largest mobile operating system in Android.

Hence, even a $1 revenue per user per year offers a potential of ~$1bn to these players, making India a market too good to miss.

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…which should provide a fillip to lower cost phones. Rural India is the fastest growing internet market as per India Cellular and Electronics Association, growing at 35% vs 7% in urban markets. This market has a smartphone penetration of just 25% and this penetration is expected to increase rapidly. This provides a natural market for smart phones, especially the sub $200 ones, which is 70% of a value conscious smartphone market.

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Attracting Investments India has been attracting investments in manufacturing and ecosystem in the ESDM sector. We list below a few recent investments: . Google announced plans to invest $10 bn in India over the next 5-7 years by way of equity investments, partnerships and other arrangements to “accelerate digitization” in the country. . Facebook invested $5.7 bn in Reliance Jio for a 9.9% stake. . Saudi Arabia's PIF, one of the world's largest sovereign wealth funds, announced an investment of around $1.6 bn in the Rel Jio platform. . Foxconn, the maker of Apple's iPhones is expected to initially increase its India investment by $1 billion; government sources say this may go up as a strong pitch is being made to Apple to shift manufacturing from China to India. . Philips announced its investment plan of $396 mn over the next three years to boost its manufacturing and R&D facilities in India. . Thomson’s French consumer electronic brand has committed another $142.8 mn to India. Thomson entered India in 2018, and claims to have a 5 per cent market share in smart TVs. . Hitachi, the Japanese major will be investing $15.9 mn for the order of 400 electric locomotives it won from the Indian Railways recently.

Low Labour Cost – key input for India to achieve scale India has one of the lowest labour costs in the world. Coupled with India’s demographic dividend, the stage is set for India’s manufacturing rise. The labour availability in India makes it an attractive destination for manufacturers to achieve a higher level of scale than they would in most other countries.

Labour Cost in India (US$/HR.) 45 40.5 40 38 35 30.6 31.2 30 24 25 20.7 20 15 9.4 10 6.2 3.3 5 1.7

India

Japan

China

Mexico

Canada

S.Korea Taiwan Germany Source: Global Competitive Index 2016 EY

July 28, 2020 13

(d) Why incentivize ESDM?

Scale is important in ESDM MeitY (Ministry of Electronics and Information Technology) recognized that the differential duty structure introduced by the Government in the Union Budget 2015-2016 on mobile phones with the hope to boost mobile manufacturing in India, instead encouraged the APTP (Assembly, Programming, Testing and Packaging) model of manufacturing, as a result of which, we also saw average production volume and value per manufacturing unit decline sharply. This raises concerns with respect to operational scale and efficiency of manufacturing units.

Focus required towards large scale manufacturing Average production volume per unit Average production value per unit (Rs. bn) (mn units) 35 30 120 30 95.4 100 25 80 20 60 15 10 40 5 2 20 11 0 0 2014-2015 2017-2018 2014-2015 2017-2018 Source: IAMAI Source: IAMAI

In order to achieve economies of scale and cost competitiveness to be able to compete globally, the industry requires large scale investment. Although global lead firms have made initial investments, their operations have been limited to assembly operations so far. With the aim to attract and encourage investments to boost large scale manufacturing and exports, India has introduced the PLI scheme.

FDI & DI Eligibility Criteria Segment Total investment (over 4 years) Total sales (over 5 years) Mobile phones (non-domestic companies) Rs.10 bn Rs.250 bn Mobile phones (domestic companies) Rs.2 bn Rs.50 bn Specified electronic components Rs.1 bn Rs.6 bn Source: MeitY reports

India has very low labour costs as compared to major countries. Countries like Vietnam and other south-east Asian countries have low labour costs but do not have the manufacturing capability and a domestic market large enough to utilize economies of scale. Many countries are looking at shifting supply chain as corona pandemic caused great disruption, but this change will not occur suddenly.

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Employment generation and advantage of demography According to the International Labour Organisation projection data, the working population of China is expected to decline and age subsequently whereas India is expected to be demographically young.

Favourable labour advantage over china for the next decade

700 Workforce aged 15-54 (mn people) 680 660 640 620 600 580 560 540 520 500 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 India China Source: E&Y report

The time has never been riper in recent history for India to take advantage of its demographic dividend. According to MietY, the incentive scheme directly is expected to generate employment of 1mn people by 2025.

Saving of foreign exchange India’s trade balance with the world in the electronics industry was negative $35.9 bn in 2019. As of 2019-2020(P) India’s electronic imports bill was $49.2 bn out of the total import bill of $474 bn. Higher production should also lead to higher exports along with lower imports.

Electronics as A % Of Total Imports (Value Wise) in India 11 10.4 10.4 10.0 10.1 10 9.4 9

8 7.4

7 6.5 6.1 6

5 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20P

Source: Export Import Data Bank

July 28, 2020 15

Level playing field in global markets The electronics manufacturing sector faces the lack of a level playing field vis- à-vis competing nations. As per industry estimate (ICEA and ELCINA), electronics manufacturing sector suffers from a disability of around 8.5% to 11% on account of lack of adequate infrastructure, domestic supply chain and logistics; high cost of finance; inadequate availability of quality power; limited design capabilities and focus on R&D by the industry; and inadequacies in skill development. Below is the example give for mobile manufacturing.

Factors that disrupt a level playing field Factor resulting in cost reduction India Vietnam China Corporate income tax exemption/reductions 0.73-0.95% 1.5-2% 2% Subsidy for machinery and equipment Nil 0.2% 3% State subsidies in India for capital investments 0.6-1.2% NA NA Cost of power 0% 1% 1% Interest subvention on working capital 0% 1.5-2% 3-3.5% R&D subsidy 0.15% 0.4-1% 2% Incentive for supporting industry 0% 0.5-1% 0% Exemption/reduction of land rental 0% 0.5% 0.6% Industrial land development support 0.4% 0.5% 0.6% Building (or plug and play) Negligible 0.3% 1% Labor subsidy Negligible 0.5% 2% Logistics 0% 0.5% 1% Factors affecting "Ease of doing business" - 1.5-2.5% 2-3% Duty free imports for creating fixed assets, and of 0% 0.5% - inputs not available domestically Total 1.88%-2.7% 9.4%-12.5% 18.2%-19.7% Source: ICEA

We clearly see the cost advantage China and Vietnam enjoy over India. We expect the Government’s incentivisation to improve scale effect and bring in technology and thus neutralize the effect of this deficit in the near future. The cost reduction from similar schemes is 0% in Vietnam and 1-2% in China. In India, the benefit from PLI scheme is expected to be 4-6% of FOB value of exports.

A policy risk can be that China and Vietnam increase incentives to neutralize the Indian players’ benefit from the PLI scheme.

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(e) Incentives announced by the Government to drive manufacturing and also target to put India in the same league as the big global trade players

EMC 1.0 scheme-2012 To create and strengthen the infrastructure ecosystem for electronics manufacturing, the Government launched the EMC (Electronics Manufacturing Cluster) Scheme in 2012 to promote manufacturing infrastructure for ESDM.

Under the scheme, 50% of the project cost for Greenfield EMC and 75% for Brownfield EMC is given a grant.

EMC 2.0 Scheme-2020 The EMC scheme acted as an enabler to create foundation for electronics manufacturing along with its value chain. The Government felt that this scheme needed to be continued in modified form to attract both global and domestic investors to commence production within such EMCs which would in turn ensure greater integration with the global value chains in the electronics manufacturing sector. Hence the EMC 2.0 was launched in April 2020. . Mainly directed to help increase investments in India’s durable segment with a focus on improving plug and play infrastructure. With a total outlay of INR 37.6bn ($500 Million), this scheme expects to generate a positive impact propelling Indian exports. . The incentive for every EMC project has been increased to 50% of the project cost with a ceiling of INR 700mn for every 100 acres of land. . A new provision for common facility center has been created with an incentive of 75% of project cost with a ceiling of INR 750mn.

PLI Scheme . This scheme is mainly targeted towards increasing production and imports in the mobile phones and electronic components sector, with a total outlay of INR 410bn ($5.5 Billion). . The incentive will be between 6% to 4% over the next 5 years starting with 6% in the first year gradually decreasing thereon till 4%. The minimum threshold investment being on a company to company basis. . The scheme smartly tries to promote large scale manufacturing.

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PLI Eligibility Criteria

Source: PLI guidelines MeitY presentation

PLI Qualification Criteria

Source: PLI guidelines MeitY presentation

SPECS Scheme . This scheme is mainly targeted towards active and passive components, semiconductors, ATMP (assembly testing marking and packaging) and specialized sub assemblies’ segments with a total outlay of INR 32.9bn ($440 Million). . With a 25% incentive on qualifying capital expenditure like plant, machinery, land, R&D, utilities with a minimum threshold investment of INR 50mn to INR 10bn and a timeline of 5 years for investing process.

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Impact and Outcome of Schemes The PLI is expected to have an impact of 4-6% on the disability that India suffers with respect to manufacturing mobile handsets and components and will make India a competitive player against China and Vietnam in the global market. SPECS and EMC 2.0 are expected to have a cumulative impact of 2-3% on Indian logistics and plug and play infrastructure by boosting OEM investments and exports. The government has also taken measures to establish efficient logistical capabilities and custom bonded warehousing which are to contribute to the ease of doing business. The ministry of electronics and information technology estimates that the measures overall would lower the cost of manufacturing in India for these companies by 5.9% to 10.7% compared to that in competing countries.

How Government Envisages the PLI to address Disabilities Sr. No. Mechanism Impact on Disability (%) Remarks 1 PLI 4% - 6% Financial incentive on large scale production 20% capex subsidy annualized on 8% 2 SPECS 0 - 1.6% capital cost Logistics, plug and play 3 EMC 2.0 1% infrastructure 4 RoDTEP 0.2% - 0.7% In lieu of MEIS as a duty-free scrips administered by DGFT 5 Concessional Rate of Income Tax 0.2% - 0.9% Custom bonded warehouse, port 6 Ease of doing business 0.50% logistics, ECB reforms Total 5.9% - 10.7% Source: https://investindia.gov.in

Recent incentives attract investments . Foxconn to invest $1 billion in Tamil Nadu plant . Pegatron, Apple’s second largest contract manufacturer, in talks with many Indian states for setting up a factory . LG to scale up local smartphone production upto 15X by Diwali, apply for PLI scheme . India inviting 5 global electronics manufacturers to 'Make in India' and export: Ravi Shankar Prasad, Electronics and IT minister . Indian companies like Lava, Dixon Technologies and Karbonn have applied for the scheme so far (as of June 26th 2020) Scheme Risks . China, Vietnam and other global trade and manufacturing hubs may increase incentives to neutralize the PLI benefits . India-China border tensions may hold off some investors for the time being . Indian currency depreciation . Ease of doing business in India and new policy risks.

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DART RATING MATRIX Total Return Expectation (12 Months)

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