Syrma SGS, Cyient DLM, Kaynes: Antique initiates coverage on EMS stocks; check targets

Antique Stock Broking has initiated coverage on several companies within the Indian Electronic Manufacturing Services (EMS) sector, highlighting attractive valuations after a recent stock price correction. The brokerage has placed a 'buy' rating on Syrma SGS Technology with a target price of Rs 671 and Cyient DLM with a target price of Rs 567. It has given a 'hold' rating has been assigned to Kaynes Technologies and Avalon Technologies, with target prices of Rs 5,970 and Rs 933, respectively.

The Indian EMS sector is witnessing significant growth, driven by supportive government policies and increasing demand for electronics across various sectors such as automotive, industrial, consumer durables, energy, and defence. This favourable landscape is expected to create substantial domestic market demand, offering EMS companies opportunities to capitalise on these trends. The sector is poised to benefit from the global market's search for a cost-effective alternative to China, further amplifying growth prospects.

Government initiatives, including incentive schemes and policy measures, are aiding India in emerging as a key EMS manufacturing hub. These efforts are designed to encourage global players to establish manufacturing bases in India, integrating Indian units into the global supply chain and boosting local production capabilities. The government's proactive stance aims to transform India into a self-reliant hub for electronics manufacturing, attracting significant foreign investments, said Antique.

India's electronic production is projected to reach Rs 27.7 lakh crore by FY28, indicating a compound annual growth rate (CAGR) of 27% over FY23–28. This growth is underpinned by the country's demographic advantages, availability of low-cost skilled labour, and robust engineering and design capabilities. The trajectory of growth is supported by the country's strategic initiatives and the increasing integration of electronics in various industries, the brokerage noted.

In a market characterised by low entry barriers and intense competition, EMS players must maintain a diverse customer base and consistently increase wallet share from clients. The focus on the B2B market with low volume but high mix offerings allows these companies to enjoy favourable business terms despite growing competition. The ability to adapt and innovate remains crucial for sustaining competitive advantage, it said.

Antique Stock Broking believes that companies with strong partnerships, early-mover advantages, and robust alliances are well-positioned to leverage these growth drivers and succeed in the global market. The potential to generate substantial value is seen as a key strength for these players. By capitalizing on strategic alliances, companies can enhance their market presence and drive long-term success.

The PLI scheme introduced by the government has attracted significant investments, aiming to ramp up manufacturing capabilities and enhance localisation efforts. This has positioned India as an attractive alternative to China for cost-effective EMS solutions. The scheme's success underscores the government's commitment to fostering a conducive environment for manufacturing growth.

Despite increased competition and the entry of new players, companies that offer a wide product offering, backward integration, and value-added services are likely to stay ahead. Lean cost structures and a focus on increasing wallet share are crucial strategies for maintaining a competitive edge. The emphasis on innovation and customer-centric approaches will be vital in navigating the competitive landscape, it added.