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Scaling up for global leadership with strong order visibility and capacity growth

India's electronics manufacturing services (EMS) industry continues to experience a robust growth trajectory, driven by a surge in global orders, growing export prospects and strong traction across segments. Key catalysts of this momentum include a growing influx of orders in high-margin sectors, reinforced global positioning and the consistent competitive advantage in the production of complex products. Our coverage universe consists of Kaynes Technology (KAYNES), Avalon Technologies (AVALON), Syrma SGS Technology (SYRMA), Cyient DLM (CYIENTDL), Data Patterns (DATAPATT), Dixon Technologies (DIXON), and Amber Enterprises (AMBER).

* EMS companies are witnessing rising order inflows from high-margin segments like aerospace, industrials, automotive, and critical infrastructure, driven by higher work content, better execution visibility, and an improving product mix.

* India’s electronics demand is fueled by multiple macro tailwinds such as increasing investments in security & safety solutions, innovation of new technologies (AI, EVs etc) and infrastructure modernization. Low penetration of consumer electronics and growth in disposable incomes will boost growth prospects for the EMS industry. Increasing participation from domestic companies as well as MNCs and their supply chains positions the Indian EMS industry for steady high-growth opportunities.

* Capacity expansion plans by domestic EMS players, complemented by government-led initiatives like the PLI scheme, should boost growth opportunities. These efforts are helping to create a robust domestic ecosystem such as semiconductors, electronic components, and high-value electronics manufacturing, further strengthening India’s position as a competitive global manufacturing hub in the coming years.

* Accordingly, we believe that the EMS industry will maintain its earnings growth momentum, aided by expanding global opportunities for EMS companies, which should result in a robust order book and capacity expansions in the long run. We expect our EMS coverage companies to achieve a CAGR of 31%/35%/48% in revenue/ EBITDA/adj. PAT over FY25-27.

Promising demand trends across segments to drive order book growth

* EMS companies are witnessing increasing order inflows across various segments, with particularly strong traction in high-margin sectors such as aerospace, industrials, automotive, and critical infrastructure applications. They are also focusing on gaining a higher wallet share and an improved product mix.

* These segments are benefiting from higher work content and improved execution visibility, which is translating into enhanced margins and a stronger growth potential for the industry.

* The aggregate order book (excluding Amber and Dixon) saw a stable growth rate of ~23% YoY and stood at INR163b as of Mar’25. This growth was driven by companies that are consistently witnessing strong traction in pipeline, led by client additions and completion of prototype/first article work for new clients with the expectation of batch production to start in FY26.

* KAYNES’ order inflows remained robust at INR15.3b as of Mar’25, driving 60% YoY/9% QoQ growth in the order book to ~INR66b as of Mar’25. This growth was primarily supported by the addition of margin-accretive orders across aerospace, industrial, and automobile segments. Notably, the average monthly order inflow improved to INR5.1b in 4QFY25 from INR4.2b in 3QFY25.

* AVALON witnessed growth across all business segments, with the total order book standing at INR28.8b in Mar’25, the short-term order book (executable within 14 months) at INR17.6b (up 29% YoY/11% QoQ) and the longer executable order book (from 14 months up to three years) at INR11.23b (up 18% YoY). Growth in the order book was led by recent order wins, which include projects in backup power systems, transmission systems, aerospace cabin products, and locomotive engine systems.

* CYIENT DLM delivered strong revenue and EBITDA growth despite the order book remaining under pressure (consolidated order book continued to decline by 12% YoY/11% QoQ to INR19b) as consumption growth by major clients outpaced new order growth. However, management anticipates strong order traction in the North American market going forward, supported by ongoing discussions with three big global players.

* DATAPATT’s order book stands at INR7.3b as of 31st Mar’25 and INR8.6b till date, and about 70-80% of the total order book is expected to be executed in FY26. Additional contracts under Brahmos are expected to materialize in the near term, and the company looks to finalize a contract for Ashwini LLTR radar within the next three to six months.

* Smartphone business visibility continues to improve for Dixon, with a healthy order book, supported by its anchor customer ramping up export volumes to North America. Additionally, order inflows from Xiaomi and Longcheer have seen a significant uptick this quarter, while demand from Itel and Infinix remains robust, further strengthening Dixon’s smartphone manufacturing pipeline.

* Strong and diversified order inflows across key sectors position EMS companies for stable growth in FY26, with robust execution visibility and rising export opportunities driving the momentum.

Expanding capacities to meet growing order book

* India’s electronics demand is fueled by multiple macro tailwinds such as increasing investments in security & safety solutions, innovation of new technologies (AI, EVs, etc.) and infrastructure modernization. Low penetration of consumer electronics and rising disposable incomes will boost growth prospects for the EMS industry.

* Growing participation from domestic companies as well as MNCs and their supply chains positions the Indian EMS industry for stable high-growth opportunities.

* The ambitious capacity augmentation plans of indigenous EMS players to capitalize on favorable government policies will support growth for the Indian EMS industry in the coming years.

* With the construction of OSAT facilities by KAYNES in Sanand and HDI PCB facilities in Chennai on track, the trials for its chips in the OSAT facility are scheduled to begin in 2Q/3QFY26 and production should start by 4QFY26.

* Avalon is investing INR400–500m in FY26 to set up a new export-oriented facility in Chennai and a domestic plant near (~30km) its existing Tamil Nadu unit. These expansions are aimed at catering to rising demand from European and GCC markets, currently catering to Japanese firms. Concurrently, the company is also developing new products across key industry verticals to strengthen its portfolio and enhance its market presence.

* As SYRMA SGS continues to prioritize growth in the automotive and industrial segments, it has operationalized a new manufacturing facility in Pune. This will help the company establish its presence in the western region and strengthen its printed circuit board assembly (PCBA) capabilities. SYRMA has installed two lines at the facility so far and may proceed with brownfield expansion as needed.

* Dixon is well-positioned to scale up operations and enhance its global competitiveness. It is executing multiple expansion strategies to meet growing customer demand and strengthen its position across key segments, including constructing a 1m sq. ft. mobile manufacturing facility with dedicated capacity for anchor clients and a display module plant with HKC, with plans to double its capacity in later phases.

* In line with its growth aspirations, Amber plans to incur a capex of INR5b across the RAC, railway and electronics divisions. Under the electronic component manufacturing scheme (ECMS), the company will file for a capex project of ~INR30b over the next five years. After government and state incentives (up to 65% reimbursement), net capex is expected to be around 30-35%.

* These capacity expansion plans by major EMS players, complemented by government-led initiatives like the PLI scheme, are expected to augment the growing growth opportunities..

* These initiatives are fostering the creation of a strong domestic ecosystem for semiconductors, electronic components, and high-value electronics manufacturing, further enhancing India’s competitiveness as a global manufacturing hub in the years ahead.

Healthy growth continues with margin expansion

* The aggregate order book for the sector grew 23% YoY to INR163b in FY25 (excluding Dixon and Amber), reflecting robust demand across key players. KAYNES led with 60% YoY growth, followed by Avalon/SYRMA at +29/+19%, while DATAPTT/CYIENT experienced a decline of 33%/13% YoY.

* Aggregate revenue surged ~84% YoY to INR586b in FY25 (excl. Dixon and Amber, it was up 30% YoY). Dixon led with 2.2x YoY growth (driven by its mobile segment), followed by AMBER at 48% YoY, led by rising demand in consumer durables and electronics; and Kaynes at 51% YoY (led by industrials up by 76%). DATAPATT/AVALON/CYIENTDL/SYRMA reported revenue growth of 36%/27%/27%/20% YoY.

* Aggregate EBITDA grew 73% YoY to INR35b in FY25, with margins contracting 40bp YoY to 6% (due to a 380bp decline in DATAPATT). While there was a marginal contraction in overall margins, EBITDA grew for all companies, with DIXON reporting EBITDA growth of 2.2x to INR15b, followed by 77% growth for AVALON, 62% for KAYNES, 55% for AMBER, 52% for CYIENTDLM, 31% for SYRMA and 24% for DATAPATT.

* DATAPATT reported an EBITDA margin decline of ~380bp as management took up low-margin strategic contracts. All other EMS companies in our coverage witnessed margin expansion in FY25, led by a favorable product mix and operational efficiencies.

Valuation and view: Uptrend likely to continue for EMS industry

* We estimate a 31% CAGR in aggregate revenue of our EMS coverage companies over FY25-27E, aided by robust order flows, capacity additions, ramp-up of existing and new plants, and development of new products across key industry verticals (such as rail, industrial infrastructure, clean energy, and communications).

* Consequently, combined EBITDA margin is likely to expand over FY25-27, fueled by favorable operating leverage. Accordingly, EBITDA is expected to register a CAGR of ~35% over FY25-27E. ? We reiterate our BUY rating on KAYNES (TP:7300), AVALON (TP: 1030), CYIENTDL (TP: 600), SYRMA (TP: 630), DIXON (TP:20500) and AMBER (TP: 7600) and our Neutral stance on DATAPATT (TP:2530).

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