Motilal Oswal Financial Services (MOFSL) has reiterated its 'Buy' recommendations for key players in the Electronics Manufacturing Services (EMS) sector, setting new target prices for Syrma SGS Technology, Dixon Technologies, Kaynes Technology, Avalon Technologies, and Amber Enterprises India. The brokerage firm's analysis highlights the sector's robust growth prospects, driven by increasing complexity in manufacturing and original equipment manufacturers (OEMs) outsourcing technically demanding products.
EMS Sector Outlook and Key Recommendations
MOFSL maintains a 'Buy' rating on Kaynes Technology India Ltd., projecting a target price of Rs 5,000. Similar 'Buy' recommendations extend to Avalon Technologies Ltd. with a target of Rs 2,740, and Cyient DLM Ltd. at Rs 1,030. Syrma SGS Technology Ltd. is also favored with a target of Rs 2,000, while Dixon Technologies (India) Ltd. has a target of Rs 16,100, and Amber Enterprises India Ltd. is targeted at Rs 8,250.
The brokerage firm notes a 'Neutral' stance on Data Patterns India, with a target of Rs 4,000.
Drivers for Growth and Margin Expansion
According to MOFSL, the EMS sector is well-positioned for stable growth into FY27, supported by strong and diversified order inflows across critical sectors, ensuring robust revenue visibility. This expansion of the addressable market for Indian EMS players is expected to enhance customer loyalty and provide a longer growth trajectory as capabilities evolve from PCBA towards comprehensive box-build solutions.
Key factors contributing to this positive outlook include:
- Moderation in Working Capital: Component availability is improving, strategic inventories are converting into revenue, and customer advances/collections are normalizing, which should ease working capital intensity.
- Increased Localisation: Growing localisation of critical components is set to improve supply assurance and reduce execution risks for Indian EMS companies.
- Margin Expansion: Future margins are expected to improve due to enhanced operating leverage, a more favorable product mix skewed towards automotive, industrial, and defense segments, and the normalization of execution and supply-chain disruptions.
MOFSL projects that the aggregate revenue for its EMS universe could grow at a 32 percent Compound Annual Growth Rate (CAGR) from FY26-28. This growth is anticipated to be fueled by strong order flows, efficient execution, healthy demand, capacity expansions, and the development of new products across various industry verticals. Consequently, the combined EBITDA margin is likely to expand over the same period, with EBITDA expected to register a 37 percent CAGR.