Strong growth to keep valuations of EMS majors at elevated levels

EMS sector expected to grow 25% annually till FY28 as order books expand and capex ramps up; high-margin orders and policy support sustain premium valuations

The electronic manufacturing services (EMS) sector is riding on structural growth drivers, including supportive policies and strong demand across sectors, like auto, industrial, consumer durables, energy, defence, medical, infrastructure, etc.

 

Apart from the large domestic market, the China-plus factor is helping exports. This is a competitive market characterised by low margins and high volumes. EMS in India is expected to hit ₹27.7 trillion by FY28, which implies over 25 per cent annual growth between FY23-28 when it was valued at ₹8.4 trillion.

 

Policy support includes incentive schemes and other measures to encourage global players to set up manufacturing and increase localisation. India has demographics, low-cost skilled labour, and engineering & design capabilities in its favour, as well as a large domestic market. EMS players need to have a diverse customer base and focus on consistently increasing wallet share while holding down costs. Indian EMS mostly focus on B2B.

 

The momentum has come from orders from high-margin sectors like aerospace, industrials, automotive and critical infrastructure and Indian players are developing competitive advantage in complex products. The relatively low penetration of consumer electronics along with growth in disposable incomes also boosts growth prospects.

 

All EMS players have capex plans and the ecosystem with higher localisation and high-value products is strengthening India’s position as a competitive global manufacturing hub. Given growing order books, EMS companies should maintain earnings momentum.

 

Consider listed players such as Kaynes Technology (Kaynes), Avalon Technologies (Avalon), Syrma SGS Technology, Cyient, Data Patterns, Dixon Technologies, and Amber Enterprises, who have strong “buy” recommendations from analysts.

 

The aggregate order book (excluding Amber and Dixon) saw stable growth rates of 23 per cent year-on-year (Y-o-Y) and hit ₹16,300 crore (end-March’25). Kaynes’ order flows were up 60 per cent Y-o-Y at ₹1,530 crore in FY25, with the book at ₹6,600 crore. Avalon saw growth across all segments, with the order book at ₹2,880 crore in Mar’25, with recent order wins from projects in backup power systems, transmissions, aerospace products, and locomotive engine systems. 

 

Cyient DLM had a decline in order book by 12 per cent to ₹1,900 crore, but delivered strong revenue and operating profit growth as execution outpaced new orders. Management guided for strong order traction in North America.

 

Data pattern’s order book was at ₹730 crore as of March 31 in FY25 and ₹860 crore till June 2025, with 70-80 per cent to be executed in FY26. Additional Brahmos contracts are expected, and a contract for Ashwini LLTR radar as well. Dixon’s smartphone visibility improved, with its anchor customer (Motorola Mobility) ramping up export volumes to North America. Order inflows from Xiaomi and Longcheer have also risen, and demand from Itel and Infinix remains robust.

 

The capex plans are logical. Kaynes is constructing facilities for outsourced semiconductor assembly and test (OSAT) and high density interconnector printed circuit boards, and production should start by Q4FY26. Avalon is investing ₹40–₹50 crore in FY26 to set up an export-oriented facility in Chennai and a domestic plant along with its Tamil Nadu unit. These expansions will service European and GCC markets. Syrma prioritises growth in auto and industrial segments, and has operationalised a new facility in Pune to strengthen its printed circuit board assembly (PCBA) capabilities. 

 

Dixon is constructing a 1 million square feet mobile manufacturing facility with dedicated capacity for anchor clients and a display module plant, with plans to double capacity in later phases. Amber will spend ₹500 crore on capex across the room air conditioner or RAC, railway and electronics divisions.

 

Aggregate revenue surged 84 per cent Y-o-Y to ₹58,600 crore in FY25. Dixon led with 2.2 times Y-o-Y growth, followed by Amber at 48 per cent Y-o-Y, and Kaynes at 51 per cent Y-o-Y, while other players reported revenue growth of above 20 per cent Y-o-Y.

 

Aggregate operating profit grew 73 per cent Y-o-Y to ₹3,500 crore in FY25, with margins contracting 40 basis points Y-o-Y to 6 per cent (with Data Patterns seeing 380 basis points margin decline). Operating profit grew for all companies and every company except Data Patterns grew margins. While growth continues at this breakneck pace, the sector should receive high valuations despite its inherently low-margin nature.