Jefferies Bullish On Indian EMS Sector; Amber Enterprises Top Pick
The government’s push on value-addition, China 1+ strategy, cheaper labor and structural growth opportunity will drive the sector growth
(The Corner Office Journal) -- Global brokerage Jefferies is bullish on the Indian electronic manufacturing services (EMS) industry amid the government’s push on value-addition, China 1+ strategy, cheaper labor and structural growth opportunity.
Electronics is a key import for India (14% of total in FY24), driving the government’s focus on indigenization, Jefferies said in an investor note. India's per capita electronics consumption, however, is much lower at $78 versus global average of $324, and has significant headroom for growth in domestic electronics consumption, it added.
The Indian EMS industry is likely to see a compound annual growth rate (CAGR) of more than 30% over FY24-FY26E, Jefferies said.
The brokerage, which is positive on India indigenization theme in 2025, raised target prices for all four EMS stocks in its coverage: Amber Enterprises India Ltd. (Buy), Syrma SGS Technology Ltd. (Buy), Kaynes Technology India Ltd. (Hold on rich valuation), and Dixon Technologies (India) Ltd. (Underperform).
“Amber stays one of our top SMID Picks, as we like its component diversification (margin-accretive),” Jefferies said.
The brokerage expects the EMS players to yield strong EPS CAGR of more than 40% over FY24-FY27E.
Investing Right
The brokerage said EMS players have increased capital expenditure (capex) investment in view of prospective demand.
Total capex these companies in FY23-FY25E is estimated at 46 billion rupees ($537 million) versus 17 billion rupees in FY20-FY22, it noted.
Jefferies said components is the focus area for Amber and Kaynes and hence, they have invested ahead of other peers.
Bullish Theme
Jefferies said multiple production-linked incentives (PLIs) have been rolled out so far that could help develop component ecosystem [e.g. Printed Circuit Board Assembly (PCBA), Outsourced Semiconductor Assembly & Test (OSAT) and Brushless DC Motor (BLDC)].
“In 2025, we are bullish on backward integration and components theme versus prescriptive OEM (Original Equipment Manufacturer),” it added.
Amber, Syrma and Kaynes are more focused on margin-accretive components, the brokerage said, adding that Kaynes has even forayed into OSAT, PCB production, while Dixon has over 80% OEM mix, which stays low-margin.
Jefferies said key moats for EMS players are: 1) Niche product offerings (backward integration is generally more value-added), 2) Strong relationships with brand owners, 3) Track record of timely and quality execution, and 4) Most EMS players do not have their own brand -- lesser risk of cannibalization.
Note: $1 = 85.6194 Indian rupees
(Send feedback to editor@cornerofficejournal.com)
Disclaimer: Investment in securities are subject to market risks, please do your due diligence before investing. The Corner Office Journal advises its users to check with certified investment experts before taking any investment decisions.