The market for Indian EMS (Electronics Manufacturing Services) is projected to grow to $221 billion by FY40, up from $51 billion in FY23, according to Kotak Institutional Equities. However, while companies like Dixon Technologies, Kaynes Technology, and Syrma SGS Technology are poised for growth, their high valuations may limit investment opportunities.
Key Points:
- The current price-to-earnings (PE) ratios for many EMS companies are higher than their five-year averages, suggesting overvaluation. For example, Syrma’s PE is 73.88 compared to its five-year average of 67.47.
- Despite high valuations, some fund managers remain optimistic due to the strong growth potential of these companies. Amit Nigam from Invesco MF notes that their historical growth justifies the premium valuations.
- The Indian EMS industry is expected to benefit from government incentives and rising domestic demand, potentially increasing its share in the global market to 7% by FY28.
- Companies like Dixon Technologies have seen significant mutual fund inflows, reflecting investor interest. However, some profit-taking was observed in April.
Quarterly Performance:
- Dixon’s revenue from the mobile and EMS segment grew 2.2 times year-on-year in Q4FY24.
- Kaynes Technology raised its growth forecast to 50-55% annually for the next two to three years.
- Syrma SGS reported its highest-ever quarterly sales of ₹1,149 crore in Q4, up 63% from the same quarter last year.
Future Outlook:
- Analysts believe the sector will continue to grow, supporting the current high valuations. However, maintaining growth will require careful management of working capital, competitive strategy, and efficient execution.
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