Indian Electronics Manufacturing Services Firms May Witness Strong Growth Despite Valuation Concerns
New Delhi: Despite concerns over high valuations, Indian electronics manufacturing services (EMS) firms are expected to witness strong growth in the coming months, driven by government incentives and the inherent growth potential of homegrown companies.
According to analysts, shares of companies such as Dixon Technologies, Amber Enterprises, Kaynes Technology, and Syrma SGS Technology may clock strong double-digit growth, outperforming headline indices. Nirransh Jain, India analyst, consumer durables, and EMS at BNP Paribas, said that despite valuation concerns, the core business operations of EMS firms remain strong.
"The high value is also underlined by strong underlying growth and fundamentals," Jain said. "The likes of Dixon and Kaynes have seen strong growth every quarter in the past three quarters. If this momentum can be maintained, such valuations are likely to be sustained in the long run—giving EMS stocks room for good growth."
Recent acquisitions, tie-ups, and business ramp-ups are also adding to organic growth, which can add further partial support to their valuations.
Analysts project a significant upside to this sector through 2025. Harshit Kapadia, vice-president for consumer durables, electronics, and capital goods at Elara Securities, added that while revenue growth is assured, margins are in focus.
"The push for China-plus-one strategies is helping Vietnam, Indonesia, and India establish manufacturing as a key economic growth opportunity," Kapadia said. "This is rising out of a global supply chain diversification strategy. India's EMS market will obviously grow as more brands come to India and work with domestic firms—to both supply local consumers, and export for abroad."
The Centre has prepared a $3 billion incentives package to boost the creation of product brands, as well as localize component manufacturing to generate greater value for EMS companies in the near term.
Notices will be closely watched by analysts and investors alike, with many predicting that fresh incentives could arrive as early as April. Kapadia said, "This will start boosting the value generation of EMS firms, adding optimism to the double-digit growth potential of EMS companies."
Nitin Kunkolienker, chairman of the board of directors of industry body Manufacturers Association of Information Technology (Mait), noted that such schemes will be key for India's technology industry growth.
"India currently stands at an average value addition of 15% across all electronics categories put together. In the near future, there is opportunity to expand value addition margins to 30%—if a component localization move is successfully executed," Kunkolienker said.
For EMS firms, achieving this could see them rank among the top bets in domestic equity market for this calendar year.