Jefferies bullish on EMS firms, has 'buy' calls on Syrma SGS Tech, Amber Enterprises

Jefferies anticipates robust performance from Syrma and Kaynes, projecting an Earnings Per Share (EPS) CAGR between 55-60 percent, accompanied by an expansion in Return on Capital Employed (RoCE).

Shares of Syrma SGS Technology jumped over 2 percent early on March 20 after Jefferies issued a "buy" rating on the stock with a target price of Rs 640 a share in its report on Electronics Manufacturing Services (EMS) companies .

According to the brokerage, EMS is a sunrise sector and is expected to grow over 35 percent in FY24-26. Factors such as the China Plus One strategy and lower labour costs are expected to significantly contribute to this growth trajectory.

Jefferies anticipates robust performance from Syrma and Kaynes, projecting an earnings per share (EPS) CAGR between 55 and 60 percent, accompanied by an expansion in return on capital employed (RoCE).

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The brokerage also has a "buy" rating on Amber Industries with a target price of Rs 4,385. Kaynes, however, has been assigned a "hold" rating with a target price of Rs 2,900 on punchy valuation. Dixon Tech's rating is kept unchanged as "underperform".

The brokerage holds a bullish outlook on Syrma due to its strong diversification across various verticals, including PCBA (Printed Circuit Board Assembly), RFID (Radio Frequency Identification), and Magnetics. It noted that Syrma serves diverse end-users, including industrial, consumer electronics, auto, medical and rail.

The company's core operating profit margin (OPM) at 7-8 percent is similar to that of Amber Enterprises but approximately twice that of Dixon Technologies.

Syrma's strategic focus on niche verticals such as Brushless DC (BLDC), RFID, railways and electronic medical devices could propel sales and drive PAT CAGR upwards by 36 percent and 57 percent, respectively, from FY24 to FY26, the brokerage said.

It also expect Syrma's RoCE to double by FY26, reaching 21 percent due to the escalation in new production capacities. With consideration of historical trading averages, a target Price-to-Earnings (P/E) ratio of 38x is allocated to the Mar'26 EPS. This valuation aligns with the company's performance and outlook, they said.

Dixon Tech stands out for the brokerage with its 80 percent Original Equipment Manufacturer (OEM) mix, while Amber Enterprises, Syrma, and Kaynes focus more on components within the EMS sector.

Kaynes distinguishes itself as the sole EMS player venturing into Outsourced Semiconductor Assembly and Test (OSAT) and Printed Circuit Board (PCB) production.

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Jefferies anticipates robust performance from Syrma and Kaynes, projecting an EPS CAGR between 55 and 60 percent, accompanied by an expansion in RoCE.

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