In his US election campaign, if there was one thing that he emphasised the most, it was about putting America first and making the country great again by strengthening their domestic industries.
This basically means levying import taxes on emerging market exports, including Indian exports.
If Trump pursues this policy, the Indian rupee, which is depreciating and at an all-time low, will be under tremendous pressure.
Also, this won’t be the first time that the US would levy tariffs on Indian exports.
In 2018, the US imposed tariffs on steel and aluminium imports from India. In retaliation, India slapped tariffs on US agricultural products.
As an investor, you must closely examine the Indian stock market for companies that could be particularly vulnerable to these economic pressures.
Keeping that in mind, we have highlighted five stocks that might face significant challenges if the tariffs are implemented.
Welspun Living Ltd
The Indian textile industry is a major exporter to the US, and in the fiscal year 2024, it exported garments and made-ups worth $7.5 billion.
Welspun Living manufactures a wide range of home textile products, including towels and bath robes, sheets, fashion bedding, and carpets.
It is one of the largest Indian home textile exporters and earns close to 88% of its revenue from exports.
The company has a global reach, exporting to more than 60 countries, including the US, Canada, and the UK.
In the US, some of its major clients are Walmart, Costco, Macy’s, Kohl’s, Sam’s Club, Marriott, and The Home Depot.
Welspun Living earns over 63% of its revenue from the US and Canada region. An imposition of tariffs on textile imports in the US can affect Welspun Living’s revenue and profits as the costs shoot up.
The company’s revenue, gross profit, and net profit have grown at a compound annual growth rate (CAGR) of 7.5%, 3%, and 5.1%, respectively, driven by growth across various segments, including business-to-business, branded, and flooring businesses.
Moreover, the company’s initiatives to reduce its energy costs by using renewable energy have also aided the margin improvement.
As a result, the return on equity (RoE) and return on capital employed (RoCE) expanded substantially, and the five-year averages stand at 13.6% and 18.1%, respectively.
Steady growth in profits has helped the company maintain sufficient cash reserves and pay off its liabilities on time. As a result, the debt-to-equity ratio has come down from 0.5, to 0.2 in just five years.
Despite the company’s ₹8,600 crore planned capex to set up manufacturing units in India and the US, the debt-to-equity ratio is expected to be moderate, given the steady cashflows.
At present, the company has a high geographical concentration in the US. However, to reduce this risk, it is focusing more on developing nations than the US.
It is also putting emphasis on its own brands and diversifying its customer base across multiple industries, including retail, hospitality, and e-commerce.
Given its strong brand name, strong fundamentals, and efforts to reduce geographical concentration, Welspun Living will be able to recover from the potential new tariffs in the long term.
However, its performance can be affected in the short term.
Goldiam International Ltd
The company is engaged in the manufacturing of gold and diamond jewellery. It supplies natural and lab-grown diamonds to global retailers, departmental stores, and wholesalers.
From being a major supplier of natural diamonds, it is transitioning to become a major supplier of lab-grown diamonds.
The company derives majority of its revenue from export business and has operations in the US, UK, Russia, Dubai, China, Hong Kong, and Australia.
However, it derives over 95% of its revenue from the US market by supplying majorly to retailers.
If Trump decides to levy tariffs on diamond imports, Goldiam’s business could be severely affected.
However, this wouldn’t be the first time the US government will be imposing tariffs on diamonds. In the past, the US government levied import duty on certain kinds of diamonds, and the effect was on the final consumers, who had to pay higher prices for the products.
If we look at the company’s past performance, Goldiam International’s revenue has grown at a CAGR of 10.6% on account of high realizations.
Moreover, earnings before interest, taxes, depreciation, and amortization (Ebitda) and net profit also grew at a CAGR of 14.1% and 15% on account of higher margins from the lab-grown business.
The return ratios (RoE and RoCE) also averaged at 15% and 21%, respectively, over the last five years indicating high financial efficiency.
It is completely debt-free, pays consistent dividends, and has sufficient cashflows to fund its capex plans.
Given the high geographical concentration in the US market, the company is diversifying its revenue streams.
To capitalize on the accessible luxury market growth in India, it has opened its first retail store under the brand name Origem. It plans to open such stores in all key markets across India.
Even if the US imposes tariffs, given the company’s growth plans across India, its growth will be unhindered in the long term.
However, in the short term, the revenue and profits might be impacted.
Rajesh Exports Ltd
The company is engaged in the manufacturing of gold and gold products.
It is the only company in the world with a presence across the gold value chain from refining to retailing.
Rajesh Exports has an extensive design portfolio with over 29,000 designs, which it sells through wholesale and retail channels.
It also operates retail showrooms under the brand name Shubh Jewellers. At present, this retail chain has 82 showrooms in Karnataka.
The company has a strong export business and exports to over 60 countries in the world, including the US, Europe, and the UAE.
In terms of its financials, the revenue grew at a CAGR of 7.5%, driven by the strong order book.
The operating profit and net profit, however, saw a decline on account of high material and employee costs.
Moreover, the costs account for 99% of the sales and hence the Ebitda margin is around 1%, and net profit margin is around 0.1%. The RoE and RoCE averaged 7.8% and 9.3%, respectively, in the last five years.
To improve its profits, the company announced its entry into the advanced technology energy solutions business through its wholly owned subsidiary ACC Energy Storage.
It is currently setting up a 5 GWh lithium-ion cell manufacturing unit in India to produce battery packs for electric vehicles.
Moreover, it also plans to strengthen its front-end operations by growing its retail presence by adding new showrooms globally and launching an e-commerce platform for the global distribution of its products.
As it is a debt-free company, it has enough scope to borrow money and fund all its capex plans.
Even though there’s a possibility of potential tariffs, the company’s growth plans can aid it nullifying the effect of US tariffs in the medium term.
Bharat Forge Ltd
The company’s product portfolio includes forgings, defence artillery systems, and protected vehicles.
Bharat Forge is India’s largest manufacturer and exporter of auto components. The company derives over 25% of its revenue from exports to the US.
It also recently partnered with US-based AM General & Mandus Group to co-develop and co-produce next-generation artillery platforms with advanced recoil technology for global markets.
The company also recently completed its capex in the US to manufacture aluminium forgings addressing opportunities in lightweighting.
As one of India’s leading exporters, any tariffs will affect the company’s revenue and profits in the short term.
Bharat Forge’s revenue has grown at a CAGR of 14.3% on account of strong order book.
Ebitda and net profit have grown at a CAGR of 16.5% and 21.1%, respectively, in the last five years on account of rapid execution of orders.
The RoE and RoCE also averaged 8.2% and 12.6%, respectively, due to stable operating performance.
Although the US is a major revenue contributor, the company is focusing on expanding its defence capacity to manufacture over 250 guns and 1,000 vehicles per annum.
Waaree Energies Ltd
The company is India’s top manufacturer of solar PV modules, with a 21% market share in the domestic solar modules market.
It also provides EPC services, O&M, and generates revenue from ancillary products and renewable electricity, reinforcing its role as a comprehensive solar solutions provider.
The company earns around 58% revenue from exports and majorly exports to the US, Canada, Italy, Hong Kong, Turkey, and Vietnam. Within export sales, the US accounts for 57% of the revenue.
With the US accounting for a majority of the export revenue, any tariffs levied on imports by the US could affect the company’s revenue.
In the last five years, the revenue has grown at a CAGR of 41.7% driven by aggressive capacity expansion.
Ebitda and net profit have also grown at a healthy CAGR of 72.7% and 100.8%, respectively, in the last five years on account of continuous efficiency improvements, improved productivity, and cost rationalization.
The RoE and RoCE also averaged 20.8% and 30.5%, respectively, in the last five years.
Waaree Energies is planning to aggressively enhance its capacity. It plans to establish a solar PV module manufacturing facility in Houston, Texas, initially set for 1.6GW, with the potential to scale up to 3GW by FY26 and 5GW by FY27, depending on market conditions.
It also plans to expand its operations in India by bolstering its leadership in the utility and enterprise module sales market.
The company has a very high concentration in the US market, and it needs to diversify revenue streams across various geographies.
Conclusion
With Trump’s America First agenda, there is a possibility of hikes in US tariffs once he takes office in January 2025.
If the tariffs on imports go up in the US, Indian products will become less competitive, affecting the revenue of companies that have a good presence in the US market.
However, various ministries and government departments are trying to come up with possible remedies if Trump goes ahead with his tariff plans.
Nevertheless, it is important to assess the situation along with the fundamentals of the company before making any investing decisions.
Along with this, you must also consider corporate governance as your key criteria for selection stocks. Access your financial goals, investment tenure, and risk tolerance levels, before making any decisions.
Happy investing!
Disclaimer: This article is for education purposes only. It is not a recommendation and should not be treated as such.
This article is syndicated from Equitymaster.com.
