Why is the $20 billion EMS business within the limelight? Kaynes Expertise, Cyient DLM may give 25% return in 1 yr

India’s home electronics market is poised to develop at a robust tempo, fuelled by flourishing end-user industries. The Electronics Manufacturing Service (EMS) business has developed over time, aided by elevated outsourcing of producing actions by OEMs.

The worldwide electronics market dimension was ~USD2.5t in CY21. Of this, the worldwide EMS market was valued at ~USD880b.

India fashioned a small a part of the worldwide EMS area with ~2.2% (USD20b) share, however it’s anticipated to develop the quickest (at 32% CAGR over CY21-26).

The worldwide electronics market registered a 3.9% CAGR over CY16-21 to USD2,494b and is additional prone to report a CAGR of 4.9% throughout CY21-CY26 to USD3,168b.

This may primarily be fuelled by rising disposable revenue, improved acceptability of audio and video broadcasting, greater broadband penetration, and the inclination of youth in the direction of next-gen applied sciences comparable to electrical autos, alternate power, digital & augmented actuality, the emergence of e-commerce, and rising demand from rural markets.
The Indian EMS business has been at a nascent stage at solely 0.6% of GDP in FY22. Nevertheless, it’s prone to catapult to an enormous INR6t by FY27, replicating the success tales of different key sectors comparable to IT, specialty chemical compounds, auto ancillary, and textile.

Every of the end-user industries is predicted to report over 20% CAGR throughout FY22-27, aided by a rising variety of digital units evolving applied sciences (comparable to EVs, AI, IOT, and so forth.) and rising consumption of digital parts per gadget.

Among the many end-user industries, cellphones commanded the best share of 62% in FY22. It’s anticipated to develop 31.5% over FY22-27 however is a high-volume, low-margin enterprise.
With the rising home electronics market, we anticipate the Indian EMS share to enhance additional to ~31% by FY27.

Additional, EMS corporations at the moment are diversifying their enterprise from being contract producers to total EMS service suppliers by providing value-added companies comparable to ODM.

It’s projected that the proportion of ODM will rise to 13.1% in CY26 from 9.8% in CY21. Electronics exports from India had been minimal at INR1,146b in FY22, which is prone to spike over the subsequent 5 years to INR8,078b by FY27E at a CAGR of 47.8%.

India has all the appropriate elements in place (comparable to low-cost labour and rising availability of uncooked supplies) to bolster our conviction for exponential progress.

We strongly imagine EMS to be a dawn sector in India propelled by the rising electronics market (~18% CAGR), authorities’s assist (PLI), evolving electronics ecosystem, and world shift comparable to China+1.

Our perception is additional underpinned by the wholesome progress witnessed in key Indian sectors during the last twenty years – comparable to IT, Specialty Chemical substances, Textiles, and Autos– which have comparable business dynamics.

Kaynes Expertise India: Purchase | Goal: Rs 3,100 | LTP: Rs 2,454 | Upside 26%
It’s a outstanding end-to-end and IoT-enabled built-in electronics producer with sturdy order ebook progress and a better share of Field Construct and PCBA (62%). Its income/EBITDA/ Adj. PAT is estimated to report a strong CAGR of 37%/43%/52% over FY23-FY26, pushed by sturdy order ebook progress and enhancing margin profile.

Cyient DLM: Purchase | Goal: Rs 870 | LTP: Rs 696 | Upside: 25%
It’s an built-in EMS firm with a deal with the whole life cycle of a product. The corporate has over three a long time of wealthy expertise in growing high-mix, low-to-medium volumes of extremely advanced programs and companies.

The corporate’s sturdy parentage with a world presence offers an edge over its friends. Its income/EBITDA/Adj. PAT is estimated to report a strong CAGR of 40%/46%/83% over FY23-FY26, pushed by a wholesome order book-to-bill ratio of ~2.6-2.9x over FY26 and enhancing margin profile.

(The creator is Head – Retail Analysis, Motilal Oswal Monetary Companies Restricted)

(Disclaimer: Suggestions, solutions, views, and opinions given by consultants are their very own. These don’t signify the views of the Financial Instances)

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