The Electronics Manufacturing Services (EMS) industry in India remains one of the fastest developing. This is supported by the Indian Government’s incentives, increase in local demand, export growth as well as the global China+1 strategy.
As per a recent report by Motilal Oswal, the sector is expected to deliver healthy earnings growth for next 2 years. The brokerage remains positive on few of the leading EMS Companies and feels the industry may continue to benefit from capacity expansion, localization and increasing share of high-value manufacturing. Here are 6 key EMS stocks which may deliver significant upside for investors with the sector entering its next phase of growth.
India’s EMS Industry Enters a New Growth Phase
India’s electronics manufacturing ecosystem has seen a tremendous change in the last few years. The government schemes like the Production Linked Incentive (PLI) scheme has led to an investment drive from manufacturing companies, thus building scale and decreasing reliance on imports.
The country on a progressive path to emerge as a favored target of global manufacturing hub in electronics, cell phones, consumer appliances, auto electronics & defence systems and industrial equipment. The country is also attracting faith and investments from across the world.
Motilal Oswal forecast the company’s in the EMS coverage universe to have a strong growth momentum from FY26 to FY28. Motilal Oswal assumes revenue CAGR of around 31%, EBITDA CAGR of around 35% and profit CAGR of 43.8% over the period.
Why Investors Are Bullish on EMS Stocks
Several structural factors are driving optimism around EMS companies:
* increasing demands for mobile phones and consumer electronics
* Increase the local sourcing of components
* More government assistance by way of inward incentive schemes
* Rising export opportunities
* Impressive order book position in industrial, defence, automotive and telecom segments
* Movement into higher value margins as well as manufacturing
These are the likely drivers that will enhance profitability and strengthen India in the global electronics supply chain.
Kaynes Technology Remains a Key Growth Story
Of the top players within the sector Kaynes Technology drives it along. Despite the diversification within this sector they still appear at the forefront of the key areas within the market and especially the industrial electronics area, along with the automotive-ome segment, aerospace, defence and the market.
The company is aggressively increasing its manufacturing capabilities and investing in next-generation equipment. Industry experts note: Kaynes could gain significantly from trends toward greater domestic content and the growing call for complex electronic systems.
The company’s continued investments in state-of-the-art PCB production and capacity expansion projects should help sustain its long-term growth momentum and reinforce its competitive position.
Dixon Technologies Strengthens Market Leadership
Dixon Technologies continues to be one of the biggest gainers from India’s electronics manufacturing boom. The firm has evolved into a prominent contract manufacturer for mobile handsets, TVs, appliances, and electronic components.
According to the brokerage;20Dixon’s growth pathway (backward integration and expansion in to component manufacturing) could sustain margins in the next two years. The company is also expected to gain from new alliances and manufacturing initiatives in varied product categories.
With an expanding home base and ever-growing export exposure, the consensus still remains Dixon to be among the best play (if not the best) among the EMS players for the long-term.
Syrma SGS Technology Expands Into High-Margin Segments
Syrma SGS Technology is an example of another company that has been gaining favourable analyst attention. Over recent years ‘it has been gradually consolidating a move away from more traditional assembly work and into high value areas such as medical electronics, defence and industrial automation’.
This move has the potential to increase its profitability as well as open new avenues for revenue generation. With increasing need for local manufacturing in manufacturing solutions and electrical and electronic items, the company’s growth prospects could potentially be enhanced further.
Avalon Technologies and Cyient DLM Offer Growth Potential
Both Avalon Technologies and Cyient DLM is also witnessing increase in demand from aerospace, defence, industrial electronics and communication systems.
Both firms are expanding the number of customers and boosting manufacturing capacity in segments of engineer-ing. Longer-term contracts and rising levels of worldwide outsourcing should underpin continuous growth of the companies for the foreseeable future.
By promoting their high value and complex manufacturing solutions, this position can also be too attractive to capture major share of EMS market.
Amber Enterprises Diversifies Beyond Consumer Electronics
Amber, an air-conditioning manufacturer, has built its manufacturing presence in areas of electronics manufacturing, renewable energy, EV related products, and power electronics.
This mode of diversification gives both the breadth for other diversification opportunities and the depthness (going beyond the production of AC) for the downward growth that reduce dependence on any single product category. More- investments made by the India in new technology will offer potential long term promising value as the nation moves toward its large-scale break from corn traditional reliance on power industry and electronics production.
Key Risks Investors Should Watch
While the growth outlook remains positive, investors should remain aware of potential risks, including:
* Global economic slowdown
* Supply chain disruptions
* Changes in government policies
* Rising competition
* Cost-driven margin contraction-raw materials increasing cost pressure
* Insufficient capacity to meet the growth in demand or unexpected growth of demand for services
In the short run, the market volatility could have an impact on the stock performance while the end market conditions remains the same on the long run.
Outlook for the EMS Sector
Indian EMS sector has the potential to comfortably ride the long-term structural tailwinds. With manufacturing shifting out of conventional geographies on a global scale, India becomes one of the key beneficiaries.
Owing to robust policy support along with increasing demand from various sectors and expansion of manufacturing capabilities, top EMS companies are likely to maintain their healthy growth. MTNLOswal is optimistic on the sector creation of value in the near future.
If you are a customer interested in tangling with the tailwinds of India’s manufacturing transformation theme, then EMS stocks like Kaynes Technology, Dixon Technologies, Syrma SGS Technology, Avalon Technologies, Cyient DLM, Amber Enterprises etc. Still remain on your watch list as we entered the next phase of growth cycle.
