IIFL Institutional betting on this company to ride electronic manufacturing boom
Renu Baid, VP-Research, IIFL Institutional Equities believes the electronic manufacturing services (EMS) space has a huge potential for growth over the next 2-3 years and that justifies their current high valuations. With EMS, she thinks the mobile phones segment will outperform.
Renu Baid, VP-Research, IIFL Institutional Equities believes the expensive valuations for companies in the electronic manufacturing services (EMS) space are justified as they are expected to deliver significant growth in the coming years.
Outlook on EMS space
She said some of the top companies within the space are expected to deliver a compounded annual growth rate (CAGR) of between 45-85% in their earnings per share over the next 2-3 years.
"The valuation rerating in the space is due to multiple factors: structural tailwind in the EMS space, a very strong and large domestic market, and supportive government policies driving disproportionate growth," she noted in a chat with CNBC-TV18.
She believes mobile phones will be the top-performing category within the EMS space. The biggest beneficiary of the growth in this segment will be Dixon Technologies due to its strong position and tie-ups with multiple major smartphone players.
The Indian electronic goods contract manufacturer, Dixon Technologies, on September 27 entered into a partnership through its subsidiary, Padget Electronics, with Xiaomi Technology India for manufacturing smartphones and other related electronic products
Other major bets
Baid expects a pick-up in white goods sales during the festive season.
However, the hypercompetitive environment in the segment and limited headroom to take price hikes remain a concern as it has been consistently putting pressure on margins.
“To that extent, some of the other categories look relatively better off than the room air conditioner (RAC) market in absolute terms. Maybe the FMEG or the appliances market will start to look up better,” she said.
According to CNBC-TV18 analysis, players like Blue Star and Voltas will see a revenue growth of 18% and 23% but the margin expansion will be in the range of 20-50 basis points (bps).
However, Baid believes that white goods will still take some time and other categories like LED televisions, and lighting have been fairly soft.
She expects the cables and wires business to see 15-18% growth in the next 2-3 years.
“If you are looking at an 18-month view then the kind of base sentiments that we have on the investment side, on the core industrial capex, infra capex as well as rebound in the real estate cycle, we think these companies can still deliver 15-18% returns incrementally from here,” she said.
According to CNBC-TV18 analysis, volume growth continues to be healthy in the cables and wires space and the industry is working with a double-digit volume growth due to higher capex spend and up-cycle in the real estate space.
Within this space, Polycab India and Havells India are likely to be an outperformer with expected revenue growth of 20% and 16% respectively.
Some of the other players like Finolex Cables and KEI Industries will see low to mid-teen revenue growth.
For more details, watch the accompanying video
(Edited by : Shweta Mungre)
First Published: Oct 16, 2023 5:17 PM IST
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