Jefferies Initiates Coverage On Kaynes, Syrma, Highlights India EMS As 'Sunrise Sector'

The government plans to raise electronic production in the country threefold to $300 billion including export growth of $120 billion by FY26e, by focusing on indigenisation, according to Jefferies.

That compares with $100 billion in production including $25 billion in export in FY23.

This ambitious target was set as the labour costs in India are approximately one-fifth of those in China and imports of electronics constitute 14% of the total imports in the nine months ended December 2023, the brokerage said.

Given the ambitious target and the importance of electronic manufacturing services as 'sunrise sector' to the economy, Jefferies has initiated coverage on two key EMS companies.

The brokerage has set 'buy' on Syrma SGS Technology Ltd. and 'hold' on Kaynes Technology Ltd.

Kaynes Technology enjoys the highest operating profit margins among EMS players in the country led by component diversification and optimal mix.

The research firm has initiated coverage with a 'hold' rating and a Rs 2,900 target price, implying an upside return of 11.1%.

Kaynes is the only EMS player in the country that has ventured into outsourced semiconductor assembly and testing and printed circuit board manufacturing.

Jefferies has assigned a target price-to-earnings ratio of 50 times to the earnings per share of March 2026, which is roughly in line with historical trading averages. However, considering the current P/E ratio of 70 times on the estimated earnings for fiscal year 2025, the risk-reward ratio "seems punchy", the brokerage said.

Syrma SGS Technology has a well-diversified portfolio across various verticals including printed circuit board assembly, radio-frequency identification, and magnetics.

These cater to a wide range of end-users, with industrial sector comprising 28%, consumer electronics 37%, auto industry 23%, medical 7%, and railways along with other sectors accounting for 5%, Jefferies said.

The research firm has initiated 'buy' rating with a target price Rs 640 apiece.

"Incremental focus on niche verticals such as BLDC, RFID, railways, electronic medical devices can help drive sales/PAT CAGR of +36%/57% over FY24-26e, with OPM at 7-8%," it said.

Dixon Technologies Ltd. deals with original equipment manufacturing, which constitutes approximately 80% of its sales.

On the other hand, companies like Amber, Syrma, and Kaynes focus more on components within the EMS sector. These components often target niche markets and contribute to higher margins, making them attractive investment prospects, Jefferies said.