Citing India's robust electronic manufacturing prospects, Morgan Stanley, a global brokerage firm, has initiated coverage on Kaynes Technology and Syrma SGS Technology with ‘overweight’ ratings, setting a target price of ₹2,440 apiece for the former and ₹671 for the latter.
The brokerage highlighted that India could play a major role in technology-related production and anticipates a 21% revenue CAGR in electronic manufacturing over the next decade (F22–32), reaching US$604 billion.
This optimistic outlook, according to the brokerage, is driven by several factors, including rising disposable income per capita, increasing number of households, rising urbanisation, improving access to electricity, easier availability of financing, and e-commerce expansion. On the supply side, it said, the country has a large and growing working-age population and a surplus of low-cost labour.
Morgan Stanley favors EMS (Electronic Manufacturing Services) companies with stronger B2B segment exposure over B2C. It notes that competition is less intense for the B2B electronic manufacturing players, with limited global entrants at present. B2B's higher margins enable higher R&D spend, thereby creating greater scope for backward integration or an increased proportion of ODM business, it noted.
The brokerage believes Kaynes and Syrma SGS are well-placed to benefit from the strong underlying growth in B2B electronic manufacturing segments, diversified business models, and tie-ups with marquee clients across key segments.
On the other hand, it maintained its ‘underweight’ rating on Dixon Technologies, pointing out that the company has huge exposure to B2C segments and is vulnerable to intense competitive intensity, and its growth is more reliant on PLI schemes continuing.
Kaynes Technology – Hungry for Growth: Kaynes is an integrated EMS player with a strong manufacturing foothold. Over time, Kaynes has focused on adding to its capabilities and providing value-added services beyond assembly through design and box-build contracts. The company has end-to-end EMS capabilities, the best margins among its peers, as well as a longstanding and strong client base.
It has strong diversification within the EMS business and is looking to backwards-integrate (PCB manufacturing). It also plans to foray into outsourced semiconductor assembly and test (OSAT) manufacturing, as per the brokerage.
Morgan Stanley forecasts revenue, EBITDA, and net profit CAGRs of 36%, 37%, and 39% over F23-28E.
Syrma SGS Technology – Strong Business Model: The company is a technology-focused and design-based EMS company. It is looking to increase its original design manufacturing (ODM) revenues in the medium term.
The company has a strong presence in radio frequency identification (RFID, a high-margin business. Syrma's strategy is to focus on high-value, high-margin orders by undertaking more box build and designing contracts. It has the lowest working capital amongst its peers, said Morgan Stanley.
It forecasts revenue, EBITDA, and net profit CAGRs of 32%, 35%, and 33% over F23-28E.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie. We advise investors to check with certified experts before making any investment decisions.