Three stocks to watch if Apple shifts manufacturing to India from China, dodging US tariffs

With a significant portion of its manufacturing currently based in China, Apple is facing potential cost increases due to these tariffs, pushing it to explore alternative manufacturing locations.

India has emerged as a strong contender in this scenario, offering a large and skilled workforce, government incentives through the production linked incentive (PLI) scheme, and a growing domestic consumer market.

Therefore, it makes sense to analyse the potential beneficiaries among Indian-listed stocks if Apple decides to significantly shift its manufacturing operations to India.

Take a look…

#1 Redington 

Redington is a leading distributor of technology products and solutions in India. The company serves as a crucial link between technology manufacturers and a wide network of channel partners, including retailers and resellers, making products accessible to end consumers and businesses.

While primarily known as a distributor of IT products from various companies like Dell and HP, a significant portion of its revenue comes from distributing Apple products in the Indian market.

Redington is also expanding its focus into cloud services distribution and management, which is considered a higher-margin business.

The company has delivered a decent top-line growth of 16% compounded annual growth rate (CAGR) over a three-year period and a net profit CAGR of 17%.

The last three-year return on equity (ROE) has been 20%.

Despite such consistent performance, the stock had a difficult time going up and staying there. The stock has been consolidating for the past one year.

The company's business model as a key distributor of Apple products in India positions it favourably to benefit from Apple's potential manufacturing shift to the country.

If Apple increases its manufacturing in India, it will lead to a greater availability of its products in the domestic market. Local manufacturing can potentially reduce import duties, which are currently factored into the price of Apple products in India.

Lower prices could make Apple products more competitive and accessible to a larger segment of the Indian population, driving higher sales volumes. As a primary distributor, Redington would directly benefit from this increased demand and sales.

As manufacturing increases within India, there's a possibility that the sales margin on Apple products for distributors like Redington could improve.

Currently, Apple products' sales margins are relatively low. Increased local production and potentially streamlined logistics could improve Redington's margins.

Also, the company’s management is optimistic about Q4 FY25 revenue, expecting it to be strong due to the fiscal year-end for many Indian corporates and government entities, the backlog of deals from Q3, and continued momentum in the Cloud and Technology Solutions Group.

It also foresees similar growth rates and optimism for the UAE and Saudi Arabia in Q4 FY25. However, the company is also prepared for potential sluggish demand in March in West Asia and Turkey due to festivals.

It is also looking at growth opportunities in ASEAN (Singapore, Malaysia, Indonesia, Thailand, Philippines) with a focus on software and cloud.

It expects to maintain earnings before interest, taxes, depreciation, and amortization (Ebitda) margin in the range of 2.3% to 2.5% in the future.

The current policy of distributing 40% of profits as dividends is expected to continue.

With a greater number of Apple devices in the Indian market, Redington's potential in distributing related accessories and expanding their cloud services offerings related to Apple's ecosystem could also see growth.

#2 LMW

LMW, earlier known as Lakshmi Machine Works, is an engineering conglomerate based in Coimbatore.

Initially founded to provide spinning technology to Indian textile mills, LMW has grown to become a leading textile machinery manufacturer in India and one of the few globally to offer complete spinning solutions.

Over the years, it has diversified its operations into many high-tech areas.

The company has delivered a solid top-line growth of 40% CAGR over a three-year period and a net profit CAGR of 86%.

The last three-year return on equity (ROE) has been 14%.

This high growth led to a sharp run in the stock because of which the stock got slightly overvalued and now the stock is consolidating and digesting its previous gains.

Looking ahead, LMW has a strong reputation for high-precision manufacturing, particularly within its machine tool division (CNC machines) and the advanced technology centre (aerospace components).

These capabilities could align with Apple's stringent quality and specification requirements for certain components in its devices.

Apple is actively looking to deepen its supplier network in India for parts and components. LMW is currently in preliminary talks with Apple about possibly supplying these parts.

While the specific components under discussion are not disclosed, LMW's diverse manufacturing portfolio increases its potential to meet some of Apple's needs.

Becoming a supplier to a global giant like Apple could open up significant growth opportunities for LMW, providing a new revenue stream and potentially leading to increased scale in its operations.

#3 Bharat Forge

Bharat Forge is a leading multinational specializing in metal forming and forging. It serves industries such as automotive, railways, aerospace, marine, oil and gas, power, construction, mining, and defence, offering critical components globally.

The company has delivered a solid top-line growth of 35% CAGR over a three-year period and a net profit CAGR of 59%.

But the stock has been in a downward trend since June 2024 due to its heavy reliance on cyclical industries like automotive and industrial exports amid global economic softness worries.

Looking ahead, things could turn around as Bharat Forge is in discussions with Apple to supply components, aligning with Apple's strategy to expand in India and reduce its reliance on China.

If successful, this could diversify Bharat Forge's revenue into electronics, leveraging its engineering expertise.

The company’s expertise in precision engineering, particularly in lightweight materials and advanced forging, could meet Apple's need for components like enclosures or mechanical parts.

Its capital expenditure plans include an ongoing investment of ₹1,000 crore over 2.5 years starting from FY24, aimed at core business, EV components, and defence.

This capex is expected to provide growth headroom, particularly in emerging sectors.

Conclusion

Apple’s bold move toward India is not just a tactical shift to dodge tariff pressures but a transformative realignment of global manufacturing.

This strategic pivot stands to benefit more than Apple alone – it opens the door for Indian-listed companies like Redington, LMW, and Bharat Forge to become vital partners in this evolving supply chain.

However, it's important to conduct thorough research on financials and corporate governance of companies before making any investment decisions, ensuring they align with your financial goals and risk tolerance.

Happy Investing.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.

This article is syndicated from Equitymaster.com