SYNOPSIS:
Macquarie initiates coverage on Kaynes Technology and Dixon Technologies with ‘outperform’ ratings, citing strong growth prospects, premium positioning in ESDM/EMS, supply-chain opportunities, and long-term margin expansion despite steep valuations.
India has built strong design and R&D capabilities in automotive electronics and industrial applications. The country is already the world’s second-largest manufacturer of mobile phones, with over 300 manufacturing units, and is projected to become the fifth-largest consumer of electronic products by FY26.
The domestic electronics system market is set for rapid expansion, with demand expected to grow 2.3 times from FY19 levels to reach $160 billion by FY25. Within the Electronic System Design and Manufacturing (ESDM) sector, the highest growth is expected in IT/Office Automation (54 percent CAGR), followed by industrial electronics (38 percent) and automotive electronics (10 percent).
Looking further ahead, India’s electronics industry is targeting manufacturing output of Rs. 43.1 lakh crore ($500 billion) by 2030. Achieving this goal will require a fivefold increase in production capacity and is expected to generate around 12 million new jobs by 2027.
Following are the two EMS stocks in focus after global brokerage firm Macquarie has recommended an “outperform” rating:
Kaynes Technology India Limited
Global brokerage firm Macquarie has initiated coverage on Kaynes Technology with an ‘outperform’ rating and a target price of Rs. 7,700 per share, representing a potential upside of nearly 14 percent from its Thursday closing levels of Rs. 6,770.3 on BSE.
Macquarie expects Kaynes Technology to deliver strong growth in the coming years. What stands out, however, is the brokerage’s rationale for justifying the company’s premium valuation, which remains among the highest in the sector.
At present, the stock trades at a price-to-earnings (P/E) multiple of 146x, making it the most expensive among its peers. Its enterprise value-to-EBITDA (EV/EBITDA) multiple is equally elevated at 95x, well above other electronic manufacturing services (EMS) players.
Macquarie argues that the numbers are justified given the massive global opportunity in the electronic system design and manufacturing (ESDM) market, which is estimated at around $1 trillion.
Looking ahead, in line with the company’s guidance of achieving Rs. 9,000 crore in revenues over the next three years, Macquarie projects that the company’s EV/EBITDA multiple could ease to 26x by FY28, with the P/E ratio moderating to around 62x.
Kaynes is positioned as the most aggressive ESDM player within Macquarie’s coverage. The company has made substantial investments in international expansion, backwards integration, and value-added services. These strategic moves not only support growth but also improve margins while strengthening customer stickiness. The brokerage further highlights that Kaynes has ample “dry powder” to accelerate its growth trajectory following its recent Rs. 1,600 crore fundraise.
Additional growth catalysts identified by Macquarie include the company’s rising presence in Original Design Manufacturing (ODM), benefits from the Production-Linked Incentive (PLI) scheme, and Outsourced Semiconductor Assembly and Testing (OSAT) & printed circuit board (PCB) facilities.
Notably, Prime Minister Narendra Modi recently acknowledged Kaynes Technology in his Semicon India address, citing its OSAT plant in Sanand, Gujarat, which is expected to begin commercial chip production soon.
Kaynes Technology India Limited is a leading end-to-end and IoT solutions provider enabling electronics manufacturing players, with capabilities across the entire spectrum of Electronics System and Design Manufacturing (ESDM) companies.
The company provides conceptual design, process engineering, integrated manufacturing, and life-cycle support for major players in the automotive, industrial, aerospace and defence, nuclear, medical, railways, IoT, IT and other segments.
Dixon Technologies (India) Limited
Global brokerage firm Macquarie has initiated coverage on Dixon Tech with an ‘outperform’ rating and a target price of Rs. 20,000 per share, representing a potential upside of nearly 23 percent from its Thursday closing levels of Rs. 17,837.4 on BSE.
The brokerage highlights Dixon’s strong leadership in smartphone manufacturing, along with the rapid expansion of its components business, as the key growth drivers. It also notes that the ongoing realignment of global supply chains is opening new opportunities for the company to capture market share.
Macquarie further projects that Dixon has the potential to expand its free cash flow margins from around 1 percent in FY25 to 4 percent by FY30, which in turn would drive sustained improvement in long-term Return on Capital Employed (ROCE).
Dixon Technologies (India) Limited is India’s largest homegrown, design-focused solutions company engaged in manufacturing products in the consumer durables, lighting and mobile phones markets.
The company’s diversified product portfolio includes consumer electronics such as LED TVs, home appliances like washing machines and refrigerators, lighting products including LED bulbs, tube lights, and downlighters, as well as mobile phones, wearable and hearable devices, and telecom and IT hardware products. The company also offers reverse logistics services, including the repair and refurbishment of LED TV panels.
Written by Shivani Singh
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