Powered by government thrust to electronic manufacturing and a China+1 strategy, the domestic industry is expected to witness windfall gains, JM Financial said in a note as the brokerage initiated coverage with a buy rating on four stocks viz. Kaynes Technology, Syrma SGS Technology, Cyient DLM and Avalon Technologies.

Kaynes Technology

JM initiated coverage on Kaynes Technology with a ‘Buy’ rating for a target price of Rs 3,410 which is an upside of 20% over the Tuesday closing price of Rs 2,936.45. The stock fell 3% to the day’s low of Rs 2,851 on the NSE amid weakness in the overall markets.

JM said that Kaynes was on a journey of value addition with significant expansion of its PCBA business across various high-margin sectors. It achieved a “remarkable” order book CAGR of 96% from FY20-23 at Rs 3,790 crore which is 2.4X its trailing-twelve month revenue.

Prioritising backward integration and venturing into the semiconductor value chain augur well for the company. Kaynes has announced plans for OSAT [Outsourced Semiconductor Assembly and Test], which is expected to augment its total addressable market (TAM) by Rs 100,000 crore.

Syrma SGS

Syrma SGS Technology is riding on high-growth sectors with leadership in the RFID business and exploring new sectors like OSAT. JM has initiated a buy rating on the counter for a target price of Rs 675, valuing it at 35X its FY26 EPS. The company has witnessed a strong revenue CAGR of 27% over FY19-FY23, mainly led by sectors such as consumer (42%) and automobiles (31%). “Over the next 2-3 years the share moving towards high margin segments like aerospace, defense, healthcare, smart meter, railways etc, will lead to margin improvement of 130 bps over FY24 to FY26,” JM note said.

Cyient DLM

With Cyient DLM’s continued focus on aerospace and defense, margins are likely to follow in 2HFY25, JM said as it recommended a buy for a price target of Rs 925 which is an upside of 10% over the last closing price of Rs 869.80. The stock today fell over 6% to the day’s low of Rs 815. Cyient DLM operates within complex and highly regulated sectors, positioning itself as a high-value business entity. The company boasts of top-notch facilities, SMT lines along with high customer concentration. JM expects the company to venture into the OSAT opportunity.

Avalon Technologies

The domestic brokerage also initiated coverage on Avalon with a buy rating and a target of Rs 620 valuing the stock at 36x FY26 EPS.

The company has traditionally been a major exporter to the USA and is now shifting focus towards domestic growth opportunities, JM said. It has steadily reduced its export exposure to below 55% from 60% in FY23. Its domestic-focused segments include EV, energy and railway sectors which offer significant growth potential.

Despite its current growth rate in the domestic market trailing the industry average, Avalon is expected to align with industry growth rates by FY25, the note said. Moreover, a revival in the USA business is anticipated from H2FY25.

JM said that India’s share in the global EMS industry is poised to grow from 2% in FY21 to 7% in FY27. Indian Printed Circuit Board Assembly (PCBA) market shall see a CAGR of 39% over FY 2022-26. Excluding mobile phones, the domestic PCBA market was worth Rs 80,000 crore in FY23 though the revenue of the top-5 listed players was only Rs 5,870 crore, which means there is a significant opportunity for them to increase their market share.

India’s push to the semiconductor value chain is an opportunity for local EMS players.

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