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India's electronics manufacturing services (EMS) industry should continue to witness a robust growth trajectory ahead, driven by diversification into high-margin verticals, product portfolio expansion and strong traction across segments. Our coverage universe includes Dixon Technologies (DIXON), Kaynes Technology (KAYNES), Amber Enterprises (AMBER), Avalon Technologies (AVALON), Syrma SGS Technology (SYRMA), Cyient DLM (CYIENTDL), and Data Patterns (DATAPATT).

* EMS opportunity is expanding beyond traditional high-volume low-margin electronics into high-complexity sectors such as semiconductor equipment, power infrastructure, aerospace, medical and defense. As global data-center investments are estimated to approach USD7t and semiconductor equipment spending is expected to reach USD190b by CY30, OEMs are increasingly outsourcing specialized manufacturing to EMS partners to scale up capacity without incremental capex. We believe this shift toward capability-led outsourcing materially expands the addressable market for Indian EMS players and creates a new long-duration growth opportunity beyond conventional electronics assembly.

* Component shortages and geopolitical risks are pushing EMS players to hold more inventory and secure supplies ahead of program ramp-ups. This is visible in KAYNES’ ~INR1.5b inventory build-up, alongside higher net working capital (NWC) at SYRMA and CYIENTDL. At the same time, companies are accelerating localization and backward integration in critical components, while customer advances can ease the WC burden. We expect WC intensity to normalize as supply improves and inventory converts into revenue.

* EMS companies are seeing strong order inflows across multiple segments, with strong momentum particularly in high-margin verticals such as defense, aerospace, AI, automotive, EV and clean energy. Aggregate order book (excluding Amber and Dixon) saw a healthy growth rate of ~21% YoY in 1QFY27 and stood at INR214b as of Jun’26.

* We believe the EMS sector will maintain its earnings growth momentum, underpinned by growing traction across end-user markets that will drive a healthy order pipeline and capacity addition in the long run. We expect our EMS coverage companies to achieve a CAGR of 32%/37%/46% in revenue/EBITDA/adj. PAT over FY26-28E.

Complexity, rather than scale, is becoming the next growth driver for EMS

* EMS outsourcing is moving beyond traditional high-volume, cost-driven electronics towards high-complexity applications, where engineering capabilities, certifications, testing, reliability and system integration matter more than scale alone. This is expanding the outsourcing opportunity across aerospace, defense, medical, railways, semiconductor equipment and power infrastructure, alongside traditional consumer, automotive, telecom and industrial markets.

* The shift is from “manufacture at the lowest cost” to “manufacture a technically complex product to stringent reliability and certification requirements.” For OEMs, outsourcing enables access to specialized capabilities and shared manufacturing infrastructure without the capex, engineering teams and operating complexity of maintaining dedicated facilities for low-to-medium volume programs. This is particularly relevant for products with long qualification cycles and high switching costs, where EMS vendors can remain embedded across multiple programs and product generations.

* The trend is already visible across our coverage: AVALON’s aerospace contribution has risen from ~3% historically to ~8% currently, while railways contributes ~15% of revenue. It is also adding semiconductor equipment, highvoltage direct current (HVDC), energy storage and medical programs. CYIENTDL derives ~42% of revenue from aerospace, with semiconductor capital equipment, AI infrastructure and robotics emerging as incremental growth areas. SYRMA is targeting ~INR5.8b in healthcare revenue in FY27 while expanding into defense, maritime, automotive and data-center power management. DATAPAT is moving up the defense-electronics value chain from subsystem manufacturing towards complete systems such as radars, electronic warfare and counter-drone solutions.

* AI is broadening the EMS opportunity beyond servers into the wider datacenter electronics ecosystem. Global data-center investment is expected to approach USD7t by CY30E, while semiconductor equipment sales are forecast to reach USD190b in CY30E vs INR166b in CY26E. AI data centers require powerconversion systems, HVDC, control electronics, networking, cooling and energy storage—products involving complex PCBA, power electronics, cable assemblies and box-build. Similarly, semiconductor equipment OEMs require control electronics, power systems, precision assemblies, cable harnesses and box-build for leading-edge logic, High Bandwidth Memory (HBM), advanced packaging and testing, allowing EMS players to participate in the semiconductor capex cycle without owning semiconductor technology.

* AVALON is already earning revenue from semiconductor equipment and HVDC programs, with the opportunity extending from PCBA to power boxes and complex box-build. Also, CYIENTDL’s existing semiconductor-capital-equipment programs will scale up over the next 6–12 months, while its B2S capabilities provide an avenue for higher-value manufacturing.

* As complexity increases, outsourcing economics become increasingly attractive. Specialized EMS players can spread equipment, engineering, testing and manufacturing costs across multiple customers and programs, improving utilization while giving OEMs flexibility to scale. This makes specialized manufacturing capabilities—not merely scale—the key differentiator and brings traditionally less-outsourced markets such as aerospace, medical, defense, railways and semiconductor equipment into the EMS outsourcing pool.

* We believe complexity, rather than scale, is becoming the key differentiator in EMS, with OEMs increasingly willing to outsource technically demanding products to specialized manufacturing partners. This should expand the addressable market for Indian EMS players, improve customer stickiness and create a longer runway for growth as their capabilities move progressively from PCBA towards box-build.

Component shortages and West Asia crisis are driving strategic inventory build-up and supply-chain integration

* The global electronics supply chain is moving away from just-in-time procurement, as AI-led demand, semiconductor capacity constraints and geopolitical disruptions are increasing lead times and creating greater uncertainty around component availability.

* Component availability has emerged as a key execution constraint, with KAYNES highlighting lead times of 6-8 months for certain components and ~10-12% price increases in some categories. CYIENTDL also highlighted tightness in PCBs, fiberglass and specialized inputs, while SYRMA expects elevated inventory levels until supply conditions normalize.

* This is prompting EMS players to carry strategic inventory ahead of program ramp-ups, effectively shifting from a cost-minimisation approach towards supply assurance. In 1QFY27, KAYNES increased inventory by ~INR1.5b, while SYRMA’s NWC days increased to 71 from 63, primarily due to higher inventory; CYIENTDL’s inventory days similarly increased to 162 from 153 in 4QFY26.

* The inventory build-up is increasingly program-led, with companies stocking components against visible order books and execution cycles. KAYNES’ inventory build-up was undertaken to secure supplies amid extended lead times, while SYRMA indicated stronger order-book visibility as inventory increased.

* The supply-chain environment is also encouraging deeper localization and backward integration, particularly in strategically important components. KAYNES is commissioning PCB manufacturing by 3QFY27, SYRMA is developing PCB/HDI capacity by 4QFY27, and India’s Electronics Component Manufacturing Scheme (ECMS) and Semicon 2.0 are supporting domestic manufacturing of PCBs, components, materials and semiconductor-related equipment.

* Customer advances are becoming an important working-capital lever as EMS players carry high-value inventory on behalf of customers. SYRMA indicated that it is negotiating customer advances where significant inventory needs to be maintained, helping offset the cash-flow impact of strategic stocking.

* This working-capital impact is visible across the sector, although the trend is not uniform across companies. KAYNES and SYRMA saw higher inventory/NWC, CYIENTDL increased inventory days to protect execution, and AVALON’s NWC days improved to 117 from 142 as inventory and receivables moderated.

* We expect the current working-capital intensity to moderate as component availability improves, strategic inventories convert into revenue and customer advances/collections normalize; importantly, the recent build-up appears to be largely driven by growth and supply-chain risk, while increasing localization of critical components should gradually improve supply assurance and reduce execution risks for Indian EMS players.

Robust order book provides strong revenue visibility

* EMS companies are seeing strong order inflows across multiple segments, with particularly strong momentum in high-margin verticals such as defense, aerospace, AI, automotive, EV and clean energy.

* These segments are gaining traction from expanding business opportunities and improving execution visibility, driving margin improvement and strengthening the sector’s growth outlook.

* The aggregate order book (excluding Amber and Dixon) saw a healthy growth rate of ~21% YoY and stood at INR214b as of Jun’26. This growth was driven by companies that are consistently witnessing strong traction in the pipeline.

* KAYNES’ order book stood at ~INR89b as of Jun’26 (up ~20% YoY/6% QoQ). The average monthly order inflow remained flat YoY at INR5b in 1QFY27.

* AVALON witnessed growth across all business segments, with the total order book standing at INR34.7b in Jun’26, the short-term order book (executablewithin 14 months) at INR22.1b (up 23% YoY/1% QoQ), and the longer executable order book (from 14 months to three years) at INR12.6b.

* CYIENTDL’s order book rose 22% YoY/8% QoQ to INR26b. Order inflow during the quarter was INR5.6b (up 10% YoY) broadly diversified across customers and business segments with ~30% from customers added over last 4 quarters. Further, two new customer logos were added during 1QFY27, while multiple Honeywell Aerospace programs are entering the ramp-up over the next 18 months, providing further visibility to order conversion.

* SYRMA’s order book continued to improve to INR67.7b as of Jun’26 (up 23% YoY/2% QoQ) of which INR54b is expected to be executed over the next 12 months. Moreover, it also added 18 new customers in 1QFY27 including five automotive, three industrial and two healthcare customers, supporting the medium-term order pipeline.

* DATAPATT’s order book stood at INR9.3b as of Jun’26 (up 14% YoY/flat QoQ). Additionally, INR17.3b of contracts have already been negotiated and are awaiting final customer approvals and formal order placement. Further, the company is pursuing ~INR20b of large single-vendor opportunities in addition to negotiated contracts.

* Strong and diversified order inflows across key sectors position EMS companies well for stable growth in FY27, with robust revenue visibility.

EMS maintained growth momentum amid supply disruptions

* The sector maintained its growth trajectory, with aggregate revenue rising 23% YoY to INR229.4b in 1QFY27. SYRMA led the pack with 68% YoY revenue growth, followed by AVALON (+50%), KAYNES (+40%), CYIENTDL (+34%), DIXON (+21%), DATAPATT (+17%) and AMBER (+13%). Aggregate revenue (excl. DIXON and AMBER) increased 51% YoY to INR35.1b.

* SYRMA reported growth across all segment with IT and Railways recording the highest growth (up 3x) and exports surging 61% YoY. Further, AVALON’s growth was largely broad-based across segments (2.4x/44%/50% growth in Clean Energy/ Mobility and transportation/Industrials).

* Overall EBITDA improved 18% YoY to INR12.1b with AVALON delivering the highest growth rate of 94% YoY, primarily led by operating leverage. Aggregate EBITDA (excl. Dixon and Amber) grew 53% YoY to INR4.4b. EBITDA margin for our coverage universe contracted 20bp YoY, mainly due to ~450bp contraction in margins of DATAPATT amid operating de-leverage.

* Margins across EMS companies showed mixed trend with margin expansion in AVALON (+270bps YoY), CYIENTDL (+150bps YoY), SYRMA (+100bps YoY) and AMBER (+60bps YoY) and margin contraction in DATAPATT (-450bp YoY), KAYNES (-120bp YoY) and DIXON (-80bp YoY).

* Going forward, margins are expected to expand due to improving operating leverage, a better product mix toward automotive, industrial and defense segments, and normalization of execution and supply-chain disruptions.

Valuation and view: EMS industry poised to maintain its uptrend

* We estimate a ~32% CAGR in aggregate revenue of our EMS coverage companies over FY26-28E, aided by robust order flows and execution, healthy demand, capacity additions, and the development of new products across key industry verticals. EMS 7 September 2026 5

* Consequently, the combined EBITDA margin is likely to expand over FY26-28E, fueled by favorable operating leverage and product mix. Accordingly, EBITDA is expected to register ~37% CAGR over FY26-28E.

* We have raised our FY28 earnings estimates for CYIENTDL/AVALON by 5%/3%.

* We reiterate our BUY ratings on KAYNES (TP: INR5,000), AVALON (TP: INR2,740), CYIENTDL (TP: INR1,030), SYRMA (TP: INR2,000), DIXON (TP: INR16,100), and AMBER (TP: INR8,250), and Neutral stance on DATAPATT (TP: INR4,000).

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