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Key beneficiary of budgeted capex and investments in road construction

3M India is likely to be beneficiary of higher budgetary allocation to capital expenditure, road construction, PLI announcements as well as higher allocation to healthcare. 3M India supplies consumables used in these industries. There will be higher demand for its products such as abrasives, adhesives due to higher capex. The demand for road markers, pavement markers, reflectors will increase with higher construction of roads. With higher allocation to Healthcare, the demand for products such as surgical and dental care products and personal safety products will increase. We remain positive on 3M India due to competitive advantages like (1) strong brands, (2) established distribution network and (3) access to technology pool of the parent. Maintain ADD with a DCF-based TP of Rs21,800 (59x FY23E).

* Increase in Gross budgetary support towards capital expenditure: There is 26% increase in gross budgetary support to capital expenditure. The capex will be largely done in sectors such as road transport & highways, railway, defense, Housing & urban affairs, Power, renewable energy, Coal, Petroleum. As 3M supplies multiples consumables such as abrasives, adhesives, security tapes, personal protection equipment to these industries, it is likely to be beneficiary.

* Increase in road construction activity: The Ministry of road transport and highways is likely to surpass the 11,000km target in FY21E and award 8,500km. Continued increase in road construction will drive revenue growth of 3M India’s road safety products such as road markers, pavement markers, reflectors and sign boards.

* Introduction of PLI likely to lead to higher manufacturing: There is PLI announcement in 13 sectors with commitment of Rs1.97lakh crores. This is likely to lead to higher manufacturing and higher requirement for consumables and other specialty products sold by 3M India.

* Higher allocation to Healthcare: The allocation to Healthcare was increased by 10% and there is special allocation to covid vaccination too. 3M supplies consumables such as body lotions, medicated tapes, dental care, surgical care products to hospitals. 3M India’s products are likely to see higher off-take due to higher allocation to Healthcare.

* Maintain ADD: We model 3M India to report revenue and PAT CAGRs of 15.7% and 40.1%, respectively, over FY21-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 Rs21,800 (59x FY23E). Key risks: Failure of new products and prolonged slowdown in the economy

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