Quick Read
Summary is AI Generated. Newsroom Reviewed
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Valuations in EMS sector fell sharply despite strong revenue and profit growth
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Kaynes Technology shares down 49% YTD with 62% profit after tax growth
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Dixon Technologies stock slipped 31% while revenues surged 66% and PAT rose 129%
The ongoing correction in valuation multiples across the Electronics Manufacturing Services (EMS) space has triggered concerns among investors, particularly the big name like Kaynes Technology and Dixon Technologies—once market darlings—have seen a significant earnings derating on a year-to-date (YTD) basis.
Despite being strong fundamentally, the stocks have witnessed a sharp price correction, raising the key question: Is the derating a temporary sentiment-led scare or the beginning of a deeper structural shift?
Valuations Under Pressure Despite Strong Earnings
A closer look at the performance metrics reveals an interesting divergence: stock prices have corrected sharply; however, earnings remain robust.
Kaynes Technology is down 49% YTD, yet the company has delivered 49% revenue growth and an impressive 62% profit after tax growth over the same period. Dixon Technologies shows a similar trend—its stock has slipped 31% YTD, even as revenues surged 66% and PAT rose a spectacular 129%.
Ordinarily, having such strong numbers would warrant stable or expanding valuation multiples. But in reality, it the opposite. The market has aggressively derated these stocks, bringing their current trailing twelve-month price to earnings down to 67 times for Kaynes Tech from a peak of 131 times and 48 times for Dixon from a peak of 72 times. This represents nearly a 50% contraction from peak valuations.
The Macro Scare Behind the Derating
The primary driver behind the valuation reset appears to be combination of lofty valuations, evolving fundamentals, and emerging concerns flagged by institutional investors and brokerages commentary. High-growth sector with premium valuations tends to be most vulnerable in phases of risk aversion. Any emerging scare—whether linked geopolitical risks, or supply-chain disruptions—typically leads investors to rotate out of high-PE names and seek relative safety.
For the EMS sector, concerns around working capital management, higher inventory levels, and negative cashflows have added to short-term volatility in stock prices. Investors are increasingly scrutinising sustainability of growth, especially in companies trading at premium multiples. As a result, even strong quarterly results have not been enough to defend stock prices at elevated valuations.
Brokerages, too, have turned selective, raising cautionary notes around execution risks, margin stability, and the sector’s dependence on a few large clients. Additionally, some company-specific overhangs—such as delayed capex, receivable build-up, or governance-related chatter—have added to the near-term discomfort.
What Analysts Expect Ahead
Despite the recent correction in EMS stocks, analysts remain positive on the sector’s medium to long-term outlook, supported by strong demand and healthy order pipelines. They see meaningful upside over the next year, with Dixon Technologies expected to rise about 32% and Kaynes Technology nearly 79%, reflecting its sharper correction and strong growth visibility.
In the near term, some pressure may persist due to high valuations, working-capital concerns, and institutional selling, leading to a likely time-wise consolidation. Still, the long-term EMS story remains intact, driven by global supply-chain shifts and rising domestic demand, with analysts stressing the need to monitor cash-flow conversion as a key indicator of sustainable growth.
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