India’s Electronics Manufacturing Services (EMS) industry is estimated to see a strong growth of 30% or more led by the incentives implemented by the government aimed at improving critical infrastructure and reducing manufacturing and capital expenditure costs.
Analysts at HDFC Securities believe these measures will help India’s nascent EMS industry to potentially elevate its share in the global EMS market from 2% to 7%.
“This growth is underpinned by several factors, including large captive demand, the proliferation of electronics in everyday products, import substitution strategies and rising exports. Moreover, concerted efforts are being made to develop the entire EMS value chain, fostering increased value addition and the creation of a local component ecosystem, which could further enhance the industry’s cost competitiveness,” said HDFC Securities analyst Paarth Gala in a report.
He believes India’s EMS industry is still in its infancy and possesses multi-year growth potential.
HDFC Securities has initiated coverage on Dixon Technologies with an ‘Add’ rating and a target price of ₹7,700 per share, Amber Enterprises with a ‘Buy’ rating and a target of ₹4,200 and Syrma SGS Technology with a ‘Buy’ call and a TP of ₹620 per share. It has downgraded its rating on Kaynes Technology India from ‘Buy’ to ‘Add’ with a target price of ₹3,000 per share.
Based on reverse DCF, at the current market price, the brokerage firm believes the implied revenue CAGR across its coverage universe is 15-30% over the next decade, which, in its view, looks achievable, given India’s EMS industry is at an inflection point.
“Hence, we do not expect any significant de-rating for the stocks, even though the stocks are currently trading at rich valuations,” HDFC Securities said.
Dixon Technologies, one of the largest EMS players in India, is a compelling play on the government’s push to make India a global destination for electronics manufacturing, given its large presence across several segments. Over the past decade, the company has exhibited superior execution capabilities, having grown its revenue and PAT at a CAGR of 32% and 48%, HDFC Securities noted.
It believes the company has enough legs to grow at an accelerated rate over the next three years led by the mobile and EMS segment. It estimates Dixon’s revenue, EBITDA and PAT to grow at a CAGR of 46%, 43% and 53% over FY23-26E.
Amber Enterprises, a dominant EMS player in the room AC (RAC) industry, has evolved from being a pure-play RAC player to a comprehensive, backward-integrated, and diversified B2B solutions provider to the HVAC and electronics space.
Over the past decade, the company’s revenue and PAT both have grown at 23% CAGR, led by sustained market share gains in RAC; integrated manufacturing facilities offering 65-70% of BoM to customers and diversification into electronics and mobility HVAC.
“We estimate Amber’s revenue, EBITDA and PAT will grow at a CAGR of 13%, 25% and 33% over FY23-26E. At CMP, the stock implies a revenue/EBIT CAGR of 13/19% over the next decade. We value the stock at 38x FY26 earnings to arrive at a target price of ₹4,200. Initiate coverage with a BUY rating,” said the brokerage.
Syrma SGS Technology is one of the prominent domestic EMS players and is well-placed to benefit from the government’s push to make India a manufacturing hub for electronics, HDFC Securities said.
With an improving scale of operations and working capital efficiency, it expects the company’s RoE and RoCE to improve here onwards to reach 14% and 18% by FY26. It estimates Syrma’s revenue, EBITDA and PAT to grow at a CAGR of 41%, 35% and 32% over FY23-26E. At CMP, the stock implies a revenue/EBIT CAGR of 30/31% over the next decade.
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HDFC Securities estimates Kaynes Technology India’s revenue, EBITDA and PAT will grow at a CAGR of 47%, 46% and 53% over FY23-26E, largely led by the traditional EMS business as OSAT and bare PCB won’t see any meaningful contribution before FY27-28.
“We value the traditional business at 45x P/E on FY26 EPS and add ₹405/180 per share for OSAT/bare PCB (discounting FY30 earnings by 13%) to arrive at a TP of ₹3,000. The current valuation of 52x FY26 earnings is baking in all the positives with little room for error. We downgrade our rating from BUY to ADD,” said the brokerage firm.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
