But the stocks are facing turbulent times. What should investors do? Listen in…
The hum of a factory floor is often the quietest soundtrack to a revolution.
For India, that sound is no longer the clanking of steel, but the precise, high-speed assembly of Printed Circuit Boards and the testing of cutting-edge electronics.
This shift marks the rise of the Electronics Manufacturing Services (EMS) industry, which has swiftly become the undisputed lifeline of Indian manufacturing.
The objective is to transform the nation from an assembly hub into a global production hub.
The story of India’s manufacturing resurgence is rooted in an aggressive geopolitical and economic realignment.
As global giants looked to de-risk their supply chains from a concentrated manufacturing base, India, buoyed by ambitious government policies, stepped in.
The centrepiece of this transformation has been the Production Linked Incentive (PLI) scheme.
By directly tying incentives to incremental production, the PLI scheme has done more than just attract capital. It has catalyzed an entire ecosystem.
As per estimates, the Indian EMS market is set to grow at a staggering rate of 28% per annum until 2031. Meanwhile, electronics exports are expected to nearly triple in the coming decade.
The true champions of this megatrend are not the global brands whose names are on the devices, but the domestic contract manufacturers who build them.
Companies like Dixon Technologies and Kaynes Technology are not just factory operators. They are the strategic partners enabling this manufacturing destiny.
Dixon, with its focus on scale and volume in mobile phones, consumer electronics, and home appliances, has become a master of efficient, large-scale production. It executes the high-volume, quick-turnaround contracts that underpin the country’s growing domestic and export prowess for mobile phones.
Kaynes Technology, by contrast, demonstrates the shift towards high-value, niche specialization. Its model is less about mass-market volume and more about low-volume, premium products across complex electronics devices. Demanding sectors like aerospace and defence, automotive, medical, and smart infrastructure are amongst its key customers.
Kaynes is actively moving up the value chain, pushing into high-margin segments such as Original Design Manufacturing (ODM) and even the sophisticated realm of semiconductor packaging (OSAT). The company aims to ensure higher value addition and more client stickiness to have a competitive advantage.
That narrative is one where Indian EMS companies are building the infrastructure for the next decade of global electronics consumption. They are the beneficiaries of the world’s shift away from its largest manufacturing economy, China.
Kaynes is also leveraging the electric vehicle revolution through Battery Management Systems, the anchor for the government’s Smart Meter deployment. It is also a participant in the indigenization of Defence and Aerospace electronics.
With India importing nearly 90% of its printed circuit boards (PCBs), domestic players are under pressure to localize production.
Amber Enterprises, Dixon Technologies, Kaynes Technology, and Syrma SGS are undertaking unprecedented levels of capital expenditure to reduce import dependence and expand up the value chain.
The companies creating local supply chains, which will ultimately strengthen margins and offer long term resilience to business cycles.
So, the best on Indian EMS players is essentially a bet on India’s transformation from a service-centric economy to a global manufacturing hub.
But the key hindrance for investors keen on EMS stocks was valuations.
The ‘growth stocks’ image of these businesses lent them premium valuations over the past three years. So much so that the stocks were priced to perfection.
However, failing to live up to the near perfect execution expectations and concerns about corporate governance has brought in some sharp correction in recent weeks.
In the case of Kaynes, for example, a major correction was triggered by concerns over working capital and specific accounting disclosures related to a recent acquisition.
The market typically penalizes the complexity and the stretching of resources that is inherent in exponential growth, unless the management is completely transparent and the accounting disclosures are impeccable.
While these concerns warrant careful scrutiny and management clarification, they are a common feature of rapidly scaling businesses that are executing aggressive capital expenditure and acquisition strategies.
For the patient, long-term investor, such corrections in fundamentally sound businesses can be an opportunity in disguise.
Such corrections offer opportunity to evaluate the quality of management, focus on the structural narrative and look for mispriced valuations.
Therefore, the recent correction in EMS stocks should be seen as their shift from the perception of ‘growth’ to ‘value’.
So, keeping such stocks in your watchlist could work well in turbulent times.
