3M India - Beneficiary of increase in mobile manufacturing - ICICI Securities

3M USA is supplier of multiple products used in mobile handsets and with an expected increase in the production of handsets in India (under PLI scheme -Link), 3M India will be a major beneficiary. Global players such as Samsung and some contract manufactures of Apple have also been given approvals under the PLI scheme. 3M India is likely to benefit considering parent's relations with these global players. 3M India can manufacture some products required by handset manufacturers in India and/or can import from its group companies which will earn it trading margin. We model 3M India to eventually set up new units to manufacture mobile components in India. There will be higher demand for industrial consumables too sold by 3M India such as sanitizers, safety markers, face masks and hand gloves. We remain positive on 3M India due to moats like (1) strong brands, (2) established distribution network and (3) access to technology pool of parent. Maintain ADD and a DCF-based TP of Rs20,000 (55x FY23E).

- Increase in mobile manufacturing in India under PLI scheme: Ministry of Electronics and Information Technology has approved 16 applicants under PLI scheme to manufacture mobile handsets and /or components in India. These companies will be given incentives of 4-6% on incremental sales over base year (FY20) for five years. These companies are expected to produce mobile handsets / components worth Rs10.5trn over the next five years.

- 3M supplies multiple products used in mobiles: Globally, 3M supplies multiple products used in mobiles such as (1) bonding materials, (2) noise cancellation materials, (3) brightness enhancers, and (4) screen protectors. We believe 3M's products are used by handset manufacturers as well as component manufacturers. Increase in mobile manufacturing in India will create a demand for 3M's products in India.

- Participation by global players in PLI scheme is advantageous for 3M India: International mobile manufacturing companies approved under PLI scheme are Samsung, Foxconn Hon Hai, Rising Star, Wistron and Pegatron. Some of these players are contract manufacturers of Apple. 3M has global relationships with large mobile companies and we expect 3M India to benefit from these relations.

- Some manufacturing possible in India, but largely a trading opportunity: We believe 3M India can manufacture some products required by mobile handset manufacturers at its Pune factory and may import some products from its group companies which will earn trading margin for 3M India. We model 3M India to eventually set up plants to cater to mobile handset manufacturers.

- Opportunity for products to be used in manufacturing units: As industrial production will increase, demand for industrial consumables such as sanitizers, safety markers, abrasives, adhesives, road/pavement markers, face masks, and hand gloves will increase. 3M India will be a beneficiary of this trend, too.

- Maintain ADD: We model 3M India to report revenue and PAT CAGRs of 4.8% and 8.2%, respectively, over FY20-FY23E. RoE is also expected to remain above the cost of capital over the same timeframe. We maintain our ADD rating on the stock with DCF-based target price of Rs20,000 (55x FY23E).

Shares of 3M INDIA LTD. was last trading in BSE at Rs.18830 as compared to the previous close of Rs. 18386. The total number of shares traded during the day was 151 in over 107 trades.

The stock hit an intraday high of Rs. 18830 and intraday low of 18384. The net turnover during the day was Rs. 2813364.

Source : Equity Bulls

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