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Systematix Research Report
We initiate coverage on India's electronics manufacturing services industry with a constructive view; Kaynes Technology India Ltd. ('Buy' target price Rs 1,930), Syrma SGS Technology Ltd. ('Buy', target price Rs 560) and Avalon Technologies Ltd. ('Buy', target price 752) are our preferred picks.
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India is set to shine in the global EMS space and estimated to post 32% compound annual growth rate at Rs ~6 trillion by FY27, per industry report.
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A plethora of new listings in last one year and robust guidance (30-40% revenue CAGR, normalising working capital cycle) by leading EMS companies for the next few years have piqued our interest in this industry.
We build in 23% revenue CAGR over FY23-25E for our coverage of seven companies, led by Kaynes, Syrma and PG Electroplast.
We believe several new listings of interesting EMS players are in the offing that should provide investors with multiple options to choose from to participate in India's EMS growth story.
What factors make India's EMS industry attractive?
Government of India's import substitution initiatives to manufacture electronic components locally through the production linked incentive scheme, electronics manufacturing clusters, scheme for promotion of manufacturing of electronic components and semiconductors, etc.
Vast export opportunities unfolding, especially to the U.S. and European firms following China plus one strategy.
A spurt in the addressable market through speedy adoption of electronic components in consumer durables (inverter air conditioners, internet of things based and BLDC fans), automobiles (transition to electric vehicles), industrial (digital displays, shift from analog to smart meters, etc.), telecom and other end-user industries.
Key risks:
Inability to sustain advancements in technology and emerging trends, client loss (lack of business commitment) and general slowdown in India's economy could hamper the businesses of EMS companies.
Stock prices of EMS companies have soared upto 75% in three months on strong management guidance. Thus, any major deviation from actual results could cause these scrips to de-rate significantly.
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