Electronic Manufacturing Services: Moderate growth, but margins to expand by Prabhudas Liladhar Capital Ltd
Moderate growth, but margins to expand
Electronics manufacturing services (EMS) companies under our coverage are expected to post moderate YoY revenue growth in Q1FY26, due to single-digit growth in CYIENTDL and revenue decline in SYRMA. In contrast, KAYNES and AVAL are likely to continue their strong momentum, with YoY revenue growth of 50% and 30%, respectively. Profitability is set to improve sharply, with margin expansion across the board driven by increasing exposure to highmargin segments. We estimate ~390bps YoY expansion in EBITDA margin and 59.1% YoY growth in PAT for our EMS coverage universe in Q1FY26. Looking ahead, we expect pickup in order book across EMS companies, supported by their strategic focus on higher margin sectors and orders, which should further support margin expansion in the coming quarters.
We expect our EMS universe to register sales/EBITDA/PAT growth of 7.5%/73.5%/59.1% YoY in Q1FY26, on the back of robust order execution and margin improvement led by cost rationalization and increased contribution from high-margin segments. We continue our positive view on EMS companies that will see healthy growth and continuously expanding opportunity market.
EMS sector to see moderate revenue growth: EMS companies under our coverage universe are expected to report single-digit revenue growth of 7.5% YoY in Q1FY26, as H1 has been historically weak. AVAL is expected to grow by 30.0% YoY, with mobility/industrial/clean energy segments growing by 50%/35%/30% YoY. CYIENTDL is expected to post only 7% YoY revenue growth in Q1FY26 due to the completion of an important project contributing to ~1/3rd of revenue. However, its gross margins are likely to improve due to better segment mix of the recently acquired Altek. KAYNES is expected to grow by 50.0% YoY, driven by automotive, industrial and aerospace. SYRMA revenue is expected to decline by 14.8% YoY, but margins are likely to expand due to the shift to margin-accretive segments and reducing consumer segment contribution to revenue (to decline by 40% YoY).
In Q1FY26, margins of the coverage companies are expected to expand due to cost rationalization and increased contributions from high-margin sectors/segments. AVAL/CYIENTDL/KAYNES/SYRMA are expected to see margin improvements of ~740/20/120/420bps YoY.
With moderate revenue growth and margin improvement, the coverage companies are expected to report healthy profitability. AVAL is expected to report profit of Rs124mn in Q1FY26 as against loss of Rs23mn in Q1FY25, and KAYNES / SYRMA are expected to see PAT growth of 22.4% / 123.3% YoY. CYIENTDL PAT is expected to decline by 39.3% YoY due to higher fixed cost and loss of a big client.
Key changes in ratings/TP: We have upward revised our TP for KAYNES, while maintaining for other companies and downgraded our rating for SYRMA to ‘HOLD’ from ‘BUY’ due to uptick in the stock prices while maintaining for other companies
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