Shares of companies such as Dixon Technologies, Amber Enterprises, Keynes Technology and Silma SGS Technology are likely to post strong double-digit growth, outpacing the broader index, they said.
Niranshu Jain, India analyst for consumer durables and EMS at brokerage firm BNP Paribas, said the core business of EMS companies remains strong despite valuation concerns.
“Concerns about high valuations for EMS companies are real, especially given the rapid rise in share prices seen over the past year.However, this high valuation is also supported by strong growth and fundamentals. Highlighted: Companies like Dixon and Keynes have experienced strong quarterly growth over the past three quarters. If this momentum can be maintained, these valuations are likely to be sustained over the long term, giving EMS stock plenty of room to grow. “The company is also accelerating organic growth, which could further partially support company valuations,” Jain said.
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Over the past year, Dixon Technologies stock has increased by 69.8%, setting a new record. INR19,149.80, down 21% as of Tuesday. With a price-to-book ratio of 145.3 times, the company’s valuation remains high. Similarly, Keynes Technology is up 121% in one year. INRAs of Tuesday, it was 7,824.95 before the 23% correction. Like Dixon, Keynes has a high valuation of 177.34. Amber Enterprises is up 78% in one year, but has revised 25% in the last month to a valuation of 123.02. Analysts believe that in all three cases there is room for correction before further increases.
Syrma SGS, which partnered with Taiwanese company MSI on January 10 to assemble laptops, is the only outlier in this regard. The company’s stock price has fallen 16% over the past year and is up 23% in the last month.
Current forecasts suggest a significant upswing in the sector by 2025.
china plus one
Harshit Kapadia, vice president of consumer durables, electronics and capital goods at brokerage firm Elara Securities, added that sales growth is solid but the focus is on margins.
“By advancing the China Plus One strategy, Vietnam, Indonesia and India have been able to establish manufacturing as a key economic growth opportunity. This stems from a global supply chain diversification strategy.India The EMS market is growing as more brands come to India and collaborate with domestic companies to both supply local consumers and export abroad. As a result, the key point will be the profitability of EMS companies, such as Tata Electronics, Dixon Technologies, etc., even if the top line remains high. In either case, assembly operations do not produce high-value yields,” Kapadia said.
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Kapadia and BNP Paribas’ Jain agree that new incentives will be key in the next phase of growth. On Dec. 12, the Mint announced that the center is preparing $3 billion in incentives to foster product brand creation and localize component manufacturing to create greater value for EMS companies in the near term. It was reported that there was.
Noting that these incentives could be introduced as early as April, Kapadia said, “This will start to drive value creation for EMS companies, increasing the potential for double-digit growth for EMS companies.” “It will add some optimism.” Although profit margin expansion is somewhat low at the moment, there are no clear challenges regarding revenue growth. High valuations are essential for EMS companies, and given the market challenges this year, valuation rationalization is likely, leading to corrections before entering the growth stage. ”
government plan
Jain also said the growth potential is justified given that component localization requires specialized manufacturing needs. “The first stage of growth for EMS companies was brought about by import substitution in mobile phones.The next stage of growth will be towards higher valuations, for which component PLI schemes will be key. “Therefore, we can expect joint ventures in this field to address specific components and subcomponents. There is also room to increase profit margins, which will further accelerate growth,” he said.
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To achieve this, all eyes are on the federal budget to be announced on February 1st. On Monday, the Mint reported that along with rationalization of import duties, the Center has also received a proposal to introduce component manufacturing PLI to boost the domestic electronics sector.
Nitin Kunkolienkar, chairman of industry body Information Technology Manufacturers Association (Mait), said such plans are key to the growth of India’s technology industry.
“India currently has an average value added of 15% across all electronics categories. Successful component localization has the potential to increase value added margins to 30% in the near future.” he said.
For EMS companies, achieving this could lead to a high ranking in the domestic stock market this year.
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