2025 promises to be a good year for EMS companies

Electronics manufacturing services (EMS) companies which rallied sharply on stock markets over the past year before last month’s decline have room for growth given the expected rollout of government incentives and the inherent growth potential of homegrown companies, multiple analysts said.

Shares of companies such as Dixon Technologies, Amber Enterprises, Kaynes Technology and Syrma SGSTechnology may clock strong double-digit growth, they said, outperforming headline indices.

Nirransh Jain, India analyst, consumer durables and EMSat brokerage firm BNPParibas, said that despite valuation concerns, the core business operations of EMSfirms remain strong.

“Concerns around the high valuation of EMSfirms are true, especially with the sharp run-up in stock prices that we’ve seen over the past year. But the high value is also underlined by strong underlying growth and fundamentals. 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 EMSstocks 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,” Jain said.

In the past year, shares of Dixon Technologies gained 69.8% to a record ₹19149.80, before losing 21% as of Tuesday. At a price-to-equity ratio of 145.3, the company’s valuation remains high. Similarly, Kaynes Technology rose 121% in a year to ₹7824.95, before correcting 23% as of Tuesday. Like Dixon, Kaynes has a high valuation of 177.34. Amber Enterprises rose 78% in one year before correcting 25% in the past month, and has a valuation of 123.02. In all three cases, analysts believe there is room for correction, before further gains.

Syrma SGS, which tied up with Taiwanese firm MSIon 10 January to assemble laptops, is the only outlier in this regard—its share price is down 16% in the past one year, and up 23% in the past month.

Projections now suggest a significant upside to this sector through 2025.

Harshit Kapadia, vice-president for consumer durables, electronics and capital goods at brokerage firm 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. This is rising out of a global supply chain diversification strategy. India’s EMSmarket will obviously grow as more brands come to India and work with domestic firms—to both supply local consumers, and export for abroad. As a result, the key stress will be the margin profile of the EMSfirms, even though the topline remains high. This is because assembly operations do not generate high-value yields, be it for Tata Electronics, Dixon Technologies or any other,” Kapadia said.

Both Kapadia and BNPParibas’s Jain agree that for the next phase of growth, fresh incentives will be key. On 12 December, Mint reported that the Centre is prepping a $3 billion incentives package to boost creation of product brands, as well as localize component manufacturing to generate greater value for EMScompanies in the near term.

Noting that these incentives could arrive as early as April, Kapadia said, “This will start boosting the value generation of EMSfirms, adding optimism to the double-digit growth potential of EMScompanies. There are no clear challenges as far as revenue growth is concerned, even as margin expansion remains a touch lower for now. High valuations are essential for EMScompanies, and given the challenges in this year’s market, there could be some rationalization of the valuation—leading to corrections before a growth phase.”

Jain also said the growth potential is justified given that component localization will require specialized manufacturing needs. “The first leg of growth for EMSfirms came on the back of import substitution for mobile phones. The next growth phase will shift to higher valuations, for which a components’ PLIscheme will be key. Once that comes through, joint ventures can be expected in this sector to cater to specific components and subcomponents. There would also be room for higher margins, adding to growth,” he said.

On Monday, Mint reported that the Centre has received proposals to introduce component manufacturing PLIs to boost the electronics sector.

Nitin Kunkolienker, chairman of the board of directors of industry body Manufacturers Association of Information Technology (Mait), said that such schemes will be key for India’s technology industry growth. Livemint