Lured by recent government schemes like PLI, global firms shifting sourcing from China, rising share of electronic content across major end-user sectors like automobiles, consumer durables and industrial - all present large opportunities for domestic (Electronics Manufacturing Services) EMS players to cater to the local market.

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Currently, about 80 percent of printed circuit board assembly and box build products are imported from China. However, there is a growing trend towards import substitution. Additionally, the production linked incentive (PLI) scheme has accelerated the process of local manufacturing, which has led to increased sourcing from domestic EMS players and translated to higher addressable market for EMS players.

Avendus Spark expects Syrma SGS Technology and Kaynes Technology India to report a faster growth of 28 percent and 25 percent CAGR respectively over FY23-27. This growth is supported by stronger presence in domestic market, expanded operations in high-volume categories such as automobile and consumer durables, as well as their successful application to benefit from the PLI scheme.

The revenues of Kaynes Tech grew from Rs 380 crore in FY18 to Rs 1,130 crore in FY23, with 85 percent contribution from India, followed by 9 percent in Europe. The company received an approval under the PLI scheme for white goods in 2022 and is witnessing growth in aerospace, defense power electronics along with expansion into consumer electronics segment.

Syrma SGS Tech, on the other hand, generates 80 percent business from exports. Its revenue mix includes one-third contribution from industrial and consumer segment each, followed by automotive, railways and healthcare.

Avalon technologies, which has a higher international presence (60 percent of revenue from exports, especially. to US), is expected grow its revenue at 20 percent CAGR over FY23-FY27, as per Avendus Spark.

The brokerage has a 'buy' rating on Syrma SGS Tech and Avalon Tech with target prices of Rs 598 and Rs 679, while Kaynes Tech has an 'add' rating with target price of Rs 1,637.

Avalon Tech and Syrma SGS Tech are trading 5 percent and 6 percent higher in trade on June 27, while Kaynes Tech is flat in trade.

Threat of EMS industry in China

Trade tensions, allegations of currency manipulation and a resurrection of economic patriotism in the US, UK and some other western nations have all formed a new level of emphasis and scrutiny on the China’s EMS business. Also, the cost of labor has risen due to lack of availability of the manpower. The average cost of manufacturing labour per day is $ 5.3 in India and $ 36 in China.

OEMs need to diversify their supply chain to reduce risk has fueled the expansion of the EMS industry in countries like India, Vietnam and Mexico. Few companies that have already moved out or planning to move out of China are Harley Davidson, Hasbro, Kayamatics, Nintendo, Panasonic, Samsung, among others.

India’s import of electronics products systematically declined between FY15 and FY20, however increased sharply in FY22 owing to a slowdown in domestic production due to a shortage of semiconductors globally. The long term mission of the Government is to reduce dependency on imported electronics products and services through ‘Atmanirbhar Bharat’ and develop a local electronics manufacturing ecosystem.