The global electronics market size was ~USD2.5t in CY21. Of this, the global EMS market was valued at ~USD880b.
India formed a small part of the global EMS space with ~2.2% (USD20b) share, but it is expected to grow the fastest (at 32% CAGR over CY21-26).
The global electronics market registered a 3.9% CAGR over CY16-21 to USD2,494b and is further likely to report a CAGR of 4.9% during CY21-CY26 to USD3,168b.
This will mainly be fuelled by increasing disposable income, improved acceptability of audio and video broadcasting, higher broadband penetration, and the inclination of youth towards next-gen technologies such as electric vehicles, alternate energy, virtual & augmented reality, the emergence of e-commerce, and rising demand from rural markets.
The Indian EMS industry has been at a nascent stage at only 0.6% of GDP in FY22. However, it is likely to catapult to a massive INR6t by FY27, replicating the success stories of other key sectors such as IT, specialty chemicals, auto ancillary, and textile.
Each of the end-user industries is expected to report over 20% CAGR during FY22-27, aided by a growing number of electronic devices evolving technologies (such as EVs, AI, IOT, etc.) and increasing consumption of electronic components per device.
Among the end-user industries, mobile phones commanded the highest share of 62% in FY22. It is expected to grow 31.5% over FY22-27 but is a high-volume, low-margin business.
With the growing domestic electronics market, we expect the Indian EMS share to improve further to ~31% by FY27.
Further, EMS companies are now diversifying their business from being contract manufacturers to entire EMS service providers by offering value-added services such as ODM.
It is projected that the proportion of ODM will rise to 13.1% in CY26 from 9.8% in CY21. Electronics exports from India were minimal at INR1,146b in FY22, which is likely to spike over the next five years to INR8,078b by FY27E at a CAGR of 47.8%.
India has all the right ingredients in place (such as low-cost labour and increasing availability of raw materials) to reinforce our conviction for exponential growth.
We strongly believe EMS to be a sunrise sector in India propelled by the growing electronics market (~18% CAGR), government’s support (PLI), evolving electronics ecosystem, and global shift such as China+1.
Our belief is further underpinned by the healthy growth witnessed in key Indian sectors over the last two decades – such as IT, Specialty Chemicals, Textiles, and Autos– which have similar industry dynamics.
Kaynes Technology India: Buy | Target: Rs 3,100 | LTP: Rs 2,454 | Upside 26%
It is a prominent end-to-end and IoT-enabled integrated electronics manufacturer with strong order book growth and a higher share of Box Build and PCBA (62%). Its revenue/EBITDA/ Adj. PAT is estimated to report a robust CAGR of 37%/43%/52% over FY23-FY26, driven by strong order book growth and improving margin profile.
Cyient DLM: Buy | Target: Rs 870 | LTP: Rs 696 | Upside: 25%
It is an integrated EMS company with a focus on the entire life cycle of a product. The company has over three decades of rich experience in developing high-mix, low-to-medium volumes of highly complex systems and services.
The company’s strong parentage with a global presence provides an edge over its peers. Its revenue/EBITDA/Adj. PAT is estimated to report a robust CAGR of 40%/46%/83% over FY23-FY26, driven by a healthy order book-to-bill ratio of ~2.6-2.9x over FY26 and improving margin profile.
(The author is Head – Retail Research, Motilal Oswal Financial Services Limited)
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)