MOFSL's Positive Outlook on EMS Sector
Motilal Oswal Financial Services (MOFSL) has released a new report on the Electronics Manufacturing Services (EMS) sector, expressing a positive outlook fueled by strong and diversified order inflows. The brokerage has reiterated 'Buy' ratings for several key players in the industry, including Dixon Technologies (India) Ltd, Kaynes Technology India Ltd, Avalon Technologies Ltd, Cyient DLM, Syrma SGS Technology, and Amber Enterprises India Ltd.
MOFSL highlights that the EMS sector is benefiting significantly from robust demand across high-margin segments such as defence, aerospace, automotive, telecom, and clean energy. This strong demand has led to a substantial aggregate order book growth of 25 percent year-over-year in FY26, reaching Rs 20,500 crore.
Key Drivers of Growth
The brokerage projects an impressive 31 percent compounded annual growth rate (CAGR) for its covered EMS companies between FY26 and FY28. This growth is anticipated due to several factors:
- Strong and consistent order flows.
- Healthy market demand across various verticals.
- Ongoing capacity additions and plant ramp-ups.
- Development of new products tailored for key industry sectors.
MOFSL emphasized that these companies are well-positioned for stable growth into FY27, backed by strong execution visibility.
Navigating Cost Pressures
While EMS companies have faced challenges from rising costs of memory, commodities, labor, and logistics, MOFSL notes that the impact has been largely mitigated. This is attributed to effective pass-through mechanisms and operational efficiencies implemented by these firms.
Despite surging global demand for memory chips, expected to outstrip supply by 1.5 times, the impact on EMS providers is deemed manageable. This resilience comes from their limited direct memory exposure and/or their ability to pass on increased costs to customers through contractual arrangements and cost-plus pricing structures. Short-term margin pressures, if any, are typically offset by procurement efficiencies, scale-led supplier negotiations, and supply-chain optimization.
Individual Stock Ratings
As per MOFSL's analysis, the following EMS companies received a 'Buy' rating:
- Kaynes Technology India Ltd
- Avalon Technologies Ltd
- Cyient DLM
- Syrma SGS Technology
- Dixon Technologies (India) Ltd
- Amber Enterprises India Ltd
Conversely, MOFSL assigned a 'Neutral' rating to Data Patterns, suggesting a more cautious stance on its near-term prospects compared to the other sector leaders.