India's EMS Sector in Full Momentum

COVID-19 pandemic and higher China dependency led to supply chain disruptions in electronic components and finished goods. Consequently, the global electronic manufacturing giants reduced dependency on China by shifting their manufacturing bases to countries such as India, Vietnam, Indonesia, which have better unit economics. We believe India will benefit from this electronics manufacturing (EMS) wave, given its: i) digitized economy driving domestic demand; ii) 1.8–6x cost effective and skilled labor vs Vietnam and China; iii) high import bill (53% of total electronics market) leading to import substitution; iv) China+1 strategy; and v) robust government initiatives to push local manufacturing.  The EMS wave kick-started in India following government announcements to push local manufacturing in FY20. As a result, the electronics import/export ratio reduced sharply from 8.3x in FY18 to 3.2x in FY23. This has resulted in a 2–5x increase in book-to-bill ratio of major India-based EMS companies, along with a rise in the entry of global manufacturing giants; Foxconn and Pegatron have announced plans to double operations in India over the next couple of years. 

We believe that India is ready to be the next EMS hub. India’s EMS market of $20bn (2.3% of global market) is poised to expand at 32% CAGR over CY21–26E and outpace global/USA/China/Europe markets. Kaynes, Syrma, Avalon and Dixon, which are some of the leading listed EMS players in India, are likely to benefit from this EMS wave.