Phillip Capita On EMS Industry The Story of Local Manufacturing

INSTITUTIONAL EQUITY RESEARCH
EMS Industry
The story of local manufacturing
19 July 2023
INDIA | ELECTRICALS | SECTOR INITIATION
It’s time for EMS players to reap the benefits. WHICH ONES and HOW? Read on...
COMPANIES
→ India is emerging as a manufacturing and exporting hub: Favourable government
policies such as PLI, PMP, SPECS, etc., significant cost arbitrage, better maturity of Company Rating CMP (Rs) TP (Rs)
infrastructure compared to other competing countries, improved taxation structure, KAYNES IN BUY 1,816 2,378
ease of exports, huge talented workforce, and China+1 is opening up India’s SYRMA IN BUY 475 619
AVALON IN BUY 653 920
manufacturing and component ecosystem (PCBA, PCB, semiconductors and other
CYIENTDL IN BUY 505 622
critical components) to the world as a viable alternate. Source: Company, PhillipCapital India Research
→ Indian EMS – a Rs 5.9tn opportunity: Low level of electronics penetration in India, and
significant manufacturing opportunity in segments such as railways, EVs, automotive,
industrial, telecom, medical, A&D, mobile phones, and IT hardware will drive the EMS
industry to touch c.Rs 5.9tn by FY27. India’s share in the global EMS industry is expected
to reach 7% by FY27 from just c.2% in FY21.
→ PCBA is a game-changing Rs 6.56tn opportunity: India’s PCBA CAGR is expected to rise
to c.39% over FY22-26 from c.26% over FY16-22. As of FY23, the Indian PCBA market
(ex. mobile phones) was c.Rs 800 bn, while the revenue of top-5 listed players was only
c.Rs 58.70 bn, which means there is significant opportunity for them to increase their
market share. OSATs/active components coming to India is also a significant exports
prospect, and with the supply-chain easing, PCBA players will get the first benefits.
→ Low Volume High Mix (LVHM) is a key driver for organized players: In LVHM,
assemblies are more critical, customer stickiness is higher, and the margins are high.
Since this segment requires a strong R&D infrastructure, greater investments on
production lines and technologies, listed organized players are well placed here. CAGR
of industry verticals in EMS- automotive/industrial/telecom/medical/aerospace &
defence (A&D) over FY23-27 are likely to be 30%/22%/21%/41%/38% – with medical
and A&D seeing the highest growth.
→ Complex PCBs + fab packaging is another growth driver for organised listed players:
Until FY20, most complex PCBs were manufactured outside India. In FY20, usage of Click here
multi-layer PCBs increased to 31% in terms of value vs. just 6% in FY19; they are widely
used in mobile phones, medical electronics, Industrials, EV, A&D and in other critical
electronics. We expect players such as Kaynes, Syrma, Cyient DLM and Avalon to enter
complex PCBs and fab packaging over the next 1-2 years. Complex PCBs and fab
packaging will increase domestic and export opportunity and will help in improving
working capital and margins. ASIAMONEY Brokers Poll 2023
“We value your votes”
With all these strong headwinds, we initiate coverage with BUY rating on Kaynes If you found the service of our team valuable,
Technologies, Avalon Technologies, Syrma SGS Technologies and Cyient DLM. please do click on the link for
• Kaynes Technologies Ltd: Diversified industries, strong customer base, domestic VOTING Asiamoney Brokers Poll 2023
presence - with export opportunity to be captured, capex based on order-book visibility, (qualtrics.com)
focus on value-added segments. We expect revenue/earning CAGR of 53%/70% over (Polls open between June 1st
till July 28th 2023)
FY23-25.
• Syrma SGS Technologies Ltd: Product expansion, robust supplier network, growing
customer base and diversified end-user industry. We expect revenue/earning CAGR of
40%/49% over FY23-25.
Deepak Agarwal, Research Analyst
• Avalon Technologies Ltd: Exports focus, now looking at domestic markets, niche in clean dagarwal@phillipcapital.in
energy, highest share of box builds amongst peers, strong rapport with marquee
customers, we expect revenue/earning CAGR of 32%/66% over FY23-25. Bhavanishankar Kumawat , Research Associate
bkumawat@phillipcapital.in
• Cyient DLM Ltd: Unique sub segment creates entry barrier, high customer stickiness,
necessary capacity to support growth, strategically bolstering competitive advantage, Nikhil Kandoi, Research Associate
exports are major - will now explore domestic markets, harnessing the power of nkandoi@phillipcapital.in
parentage. We expect revenue/earning CAGR of 47%/105% over FY23-25.
Page | 2 | PHILLIPCAPITAL INDIA RESEARCH

Please see penultimate page for additional important disclosures. PhillipCapital (India) Private Limited. (“PHILLIPCAP”) is a foreign broker-dealer unregistered in the USA. PHILLIPCAP research
is prepared by research analysts who are not registered in the USA. PHILLIPCAP research is distributed in the USA pursuant to Rule 15a-6 of the Securities Exchange Act of 1934 solely by Rosenblatt
Securities Inc, an SEC registered and FINRA-member broker-dealer. Powered by EQUITEC
ELECTRICALS SECTOR INITIATION
Table of Contents
Electronics: A big opportunity still to play out ........................................................................... 4

Atmanirbhar: Make in India to Make for the World .................................................................. 6
A big opportunity for Indian EMS players................................................................................... 9
Deep diving into India’s EMS industry ...................................................................................... 11
PCBA: A game-changing opportunity ....................................................................................... 15
Exports opportunity for PCBA................................................................................................... 19
Printed Circuit Board (PCB)....................................................................................................... 20
India moving towards complex PCBs ........................................................................................ 21
The prospects of backward integration for EMS companies.................................................... 26
We expect positive news flow to continue…............................................................................ 29
Case study – Will China still remain the dominant player for EMS outsourcing? .................... 32
Product portfolio of companies that we are initiating. ............................................................ 35
Looking at who is placed where in the industry ....................................................................... 37
COMPANIES SECTION
Kaynes Technology India Ltd .................................................................................................. 50
Syrma SGS Technology Ltd ...................................................................................................... 75
Avalon Technologies Ltd ......................................................................................................... 98
Cyient DLM Ltd ...................................................................................................................... 120
Source: Cyient DLM RHP, World Bank, IMF, Frost & Sullivan, Syrma SGS RHP, Avalon RHP, ICEA, Ministry of
commerce and trade, Investor presentation of coverage companies, Company website, Kaynes RHP, PCB
industry, News Articles

Electronics: A big opportunity still to play out

Global electronics industry to see a CAGR of c.5% over CY21-26
in-house (OEMs) EMS Currently, in-house manufacturing
accounts for approximately 65% of
3500 the total electronics market.
However, in recent years, the
3000 involvement of EMS players has
2500 1145 expanded significantly – OEMs/
brands can now outsource to EMS
in USD bn
2000 880 players, which will result in a CAGR of

741 5% over CY 21-26 vs. 3% over CY16-21
1500
1000 2023
1614
1318
500
0
CY16 CY21 CY26E A huge opportunity
for manufacturing
Source: PhillipCapital India Research, Company Data
Note: The electronics industry is inclusive of electronics products, electronics design, electronics components and
electronics manufacturing services (EMS)
India’s electronics industry CAGR of c.20% over CY23-27

• India’s electronics industry is poised for strong growth over the coming years
because of low penetration levels, rising disposable incomes, increased localization,
which will increase affordability, as well as various policy initiatives taken by the
government such as PLI, Phased Manufacturing Programme (PMP), and
Aatmanirbhar Bharat – which should incentivize local manufacturing in India.
• The total market was Rs 10,564bn in FY23 which should touch Rs 21,540bn by FY27,
at a CAGR of 20%, with 90% domestic production (Source: Cyient DLM RHP).
Total electronics market in India (domestic manufacturing + imports)

Elec. Domestic Production Elec. Import
25000
CAGR (FY23-27E): Domestic production was c.76% of the
Overall: 20% 21540
total market in FY21, which should
Domestic: 27% 2,137 touch c.90% by FY27
20000
Import: -8%
CAGR (FY18-23):
2,743
Overall: 14%
15000
In Rs. bn
Domestic: 14%
2,968
Import: 13% 10564
3,001
10000 19,403
3,040
2,887 15,159
5568 1,608 1,736
1,981 11,661
5000 1,685 9,255
6,376 7,524
4,580 5,336 5,545
3,883
0
FY18 FY19 FY20 FY21 FY22 FY23 FY24E FY25E FY26E FY27E
Source: PhillipCapital India Research, Cyient DLM RHP

Why is India attractive for manufacturing?

Economic comparison on favourable manufacturing parameters, 2021
China +1
PARAMETERS Strategy top INDIA CHINA VIETNAM MEXICO
beneficiary
Population (million) 1390.0 1410.0 98.5 129.0
Economic development in India is
Annual GDP (USD trillion) 3.18 17.74 0.37 1.30
gaining momentum as a result of
GDP Growth (%) - CY26E 6.5 4.9 6.7 2.1 the continuing expansion of private
Inflation (%) 5.5 0.9 1.8 5.7 consumption and investments,
Manufacturing value added (% of GDP) 14.4 26.2 25.0 18.0 which is also supported by high
FDIs, lowest manufacturing risk
Export (USD trillion) 0.42 3.36 0.34 0.50
index, and liberalisation of foreign
Imports (USD trillion) 0.61 2.69 0.33 0.52 ownership
Manufacturing Risk Index (Rank) 2.0 1.0 11.0 21.0
FDI investments (USD billion) 45.0 334.0 20.0 32.0
Source: PhillipCapital India Research, Cyient DLM RHP
2021: Comparison of the manufacturing ecosystem between India, China, Vietnam, and Mexico
INDIA CHINA VIETNAM MEXICO
Favorable Government Policies and Programs

India and Vietnam are
gaining ground as the
Developed Component eco system second-best destinations
after China, but India is
Labour Cost taking the lead in terms
of ‘maturity of
Maturity of Infrastructure infrastructure’, ‘ease of
export’ and ‘labour cost’
Ease of export
LOW MED HIGH
Source: PhillipCapital India Research, Industry Data
2021 labour market comparison: India has a significant labour and cost arbitrage
China +1 Strategy
PARAMETERS INDIA CHINA VIETNAM MEXICO India has significant
top beneficiary
labour arbitrage over
Total Labor Force (Million) 471.3 793.8 56.2 57.3
other emerging
Labor force participation rate (% of total economies, as well as the
52.1 75.9 83.1 65.3
population) lowest wages (1/7th of
Employment in Industry
(% of total employment)
25.0 27.0 27.0 26.0 China’s average daily
Wage and salaried workers wages), which bodes well
24.2 55.3 45.7 68.1
(% of total employment) for the EMS industry. With
Average Daily Wages - Nominal (USD) 5.3 36.0 9.5 13.3 India’s very strong talent
pool, EMS will see strong
Average Daily Wages - Manufacturing (USD) 6.0 6.5 3.0 4.8 CAGR ahead
Source: PhillipCapital India Research, Industry Data
Most factors provide India an edge over other emerging economies in terms of shifting
manufacturing capacity from China. Additionally, Government support in the form of policies like
SPECS, PLI, etc., will also play an important role

Atmanirbhar: Make in India to Make for the World

The electronics consumption market in India is likely to have been Rs 6,462bn in FY21,
and should see a CAGR of 13% to reach Rs 13,463bn by FY27. It can be sub-divided into Click here for our detailed Ground View
various segments such as – mobile phones, consumer electronics, telecom, and report on electronics manufacturing in
networking products, IT hardware, and automotive. India
Key drivers that are assisting the rapid

Industry set to see rapid growth in manufacturing backed by higher domestic
expansion of the industry
demand and exports
→ Increasing penetration of consumer
electronics in semi-urban and rural
areas
→ A shift in lifestyles of the Gen Y
population
→ Adoption of smart devices, etc.
→ Affordability
India soon to be an Electronics Export Hub
FY22 FY27E
8117 19403
6376 13463
1146 8078
(Figures in Rs bn)
Exports CAGR Production Consumption

47.8% CAGR 24.9% CAGR 10.6%
Source: PhillipCapital India Research Estimate, Industry data
Domestic electronics production: India has the potential to be one of the most
India poised as attractive global
attractive manufacturing destinations in the world, supporting the objective of “Make-
manufacturing hub, driving GDP growth
in-India for the world” – in line with our sector view as highlighted in our Ground View
report. The Indian government has taken a series of steps towards attaining this goal
such as M-SIPS (Modified Special Incentive Package Scheme), PLI (Production-Linked
Incentive Scheme), Scheme for Promotion of Manufacturing of Electronic Components
and Semiconductors (SPECS), etc. In FY21, domestic electronics production in India
contributed to 2.8% of its GDP – which should increase to 5.3% by FY27
Imports of integrated circuits (ICs) saw CAGR of 41% over FY17-23 to Rs 1.3tn – A
testimony of manufacturing picking-up in India: This was due to increasing
manufacturing of electronics/mobile phones in India and Indian EMS companies
exploring exports opportunities. CAGR of imports from Taiwan/China/Hong-
Kong/Korea/Singapore was c.40%/ 41%/ 100%/ 32%/ 39% and the share of Hong Kong
as % of overall imports increased to 22% in FY23 from just about 2% in FY17. However,
with India developing its component ecosystem, ICs will soon be produced in India. This
should result in better supply-chain management and better working capital for
electronics manufacturers in the country.

IC imports CAGR at c.41% over FY17-23 Major countries from where ICs are imported
1400 1,297
IC Imports (Rs bn) TAIWAN, 8%
1200 Others, 18%
1,017
1000
800 716
675 SINGAPORE, CHINA P RP,
615
10% 29%
600
400
237
117 151
200 KOREA RP,
14%
0
FY-17 FY-18 FY-19 FY-20 FY-21 FY-22 FY-23 FY24
HONG
YTD*
KONG, 22%
Source: Ministry of commerce and trade, PhillipCapital India Research Source: Ministry of commerce and trade, PhillipCapital India Research
Electronics imports: Total imports value of electronics (finished goods) in India was China and Hong Kong dominated India's
estimated at Rs 1,685bn in FY18 and Rs 3,040bn in FY23. China and Hong Kong electronics imports in FY20, primarily in
accounted for nearly 70% of India’s imports in FY20. The top-three imported products laptops, TVs, and storage devices
in India were laptops and desktops, FPD (flat panel display) televisions, and storage
devices. Most components used in building notebooks and laptops were imported as
SKD (semi-knocked down) units from China and Thailand. Industry expects with
increasing domestic production + value addition FG imports to come down.
Electronics exports: Total exports value of electronics from India was Rs 412bn in FY18
India’s electronics exports should see
and Rs 1,834bn in FY23. India’s electronics exports should see substantial CAGR of 45% substantial CAGR of 45% in FY23-27 to
from FY23-27. The top-3 products in exports are mobile phones, engine control units, reach to Rs 8,087bn by FY27
and industrial machinery. Globally, India ranks second in mobile phones
manufacturing, which involves design, assembly, and manufacturing processes.
Electronics exports trend FY18-27 Electronics imports trend FY18-27

We expect significant CAGR of 45% over FY23-27 We see a fall, -8% CAGR over FY23-27
Electronic exports from India Electronic imports to India (FG)
9000 8078 3500

3040 3001 2968
8000 2887
3000 2743
7000
5811 2500
6000 CAGR 2137
1981
in Rs bn
in Rs bn
5000 FY18 – FY23: 35% 4151 2000 1685 1736

1608
4000 FY23 – FY27: 45%
2824 1500 CAGR
3000 FY18 – FY23: 13%
1834 1000
2000 FY23 – FY27: -8%
829 818 1146
1000 412 619 500
8
0 0
FY25E
FY18
FY19
FY20
FY21
FY22
FY23
FY24E
FY26E
FY27E
FY19
FY24E
FY25E
FY26E
FY27E
FY18
FY20
FY21
FY22
FY23
Source: Industry reports, PhillipCapital India Research Source: Industry reports, PhillipCapital India Research
We expect strong exports from India

with component eco-system developing over the next 2-3 years.

What we envisioned, now thriving in vibrant actuality
India moving towards Atmanirbhar

A big opportunity for Indian EMS players

The global electronics manufacturing services (EMS) market should touch Rs 64tn by FY26 with the Indian EMS market
outpacing global growth
India’s share in global EMS market to increase significantly; CAGR of c.32%
2021 – Rs 53,272bn 2026E – Rs 64,314bn
35.2% 44.4%
2.2% 7.0%
15.9%
16.4%
CAGR: 32%
46.7%
32.2%
INDIA CHINA USA ROW
India’s EMS addressable market to grow Increasing Indian players’ share India’s EMS market to grow
to Rs10058bn from Rs2682bn in EMS markets driven by Rs4502bn from Rs 1172bn
10058 4502
❖ Reduction in import to
15% in FY26E from 24%
in FY21
❖ Specialized EMS services

driving the growth
2682
❖ OEM production
reducing to 75% inFY26E 1172
from 84% in FY21
FY21 FY26E
FY21 FY26E
Source: PhillipCapital India Estimate, Company Data
Note: EMS addressable market: Contribution of EMS companies out of India + in-house EMS activities by brand manufacturers based out of India + imported EMS
Indian EMS Industry

Share of Indian EMS in overall electronics manufacturing is expected to grow Key growth drivers for Electronic
Manufacturing Services in India -
in-house (OEMs) EMS • Import substitution
Share of • Supportive govt. policy
20000 EMS: 25% • Ease of doing business
18000
• Enhancing local value addition
16000 4502 • China +1 strategy
14000
Share of
• Exports focus on US$ 5tn GDP
12000 Share of • Increase in investments by local and
in Rs bn
EMS: 16%
10000 EMS: 12% global players
8000 1172 • A huge workforce with relatively very
6000 689 13400 low wages compared to the global
4000 average
4879 6109
2000
0
CY18 CY21 CY26E

Factors driving growth in the Indian EMS market and future opportunities
Government incentives such as Investments by local and

PLI, MEIS, EMC, SPECS, etc China+1 strategy Import substitution
global players
PLI licenses for telecom/mobile Companies and governments Imports expected to reduce to
Make in India and Digital India
and networking products and world over increasingly 10% of the Indian electronics
programs boost investments in
white goods. Additionally, reducing dependence on China market from 29% in FY23
the manufacturing sector in
schemes like SPECS will push India
elec. component manufacturing
Source: Company data, PhillipCapital India Research Estimate
Policy initiatives taken by India towards incentivizing localization in India

→ Production linked incentive (PLI) scheme
→ Scheme for Promotion of Manufacturing of Electronic Components and
Semiconductors (SPECS)
→ Merchandise exports from India scheme (MEIS)
→ Modified Electronic Manufacturing Clusters Scheme (EMC 2.0)
→ Phased Manufacturing Programme (PMP)
→ National Policy on Electronics (NPE)
→ Modified Special Incentive Package (M-SIPS)
→ Modified Programme for Semiconductors and Display Fab Ecosystem
→ Design Linked Incentive (DLI) Scheme
→ Gujarat Semiconductor Policy 2022-27
Long-term goals in electronic manufacturing

• Make-in-India for the world
• Make India the #1 electronics manufacturer and exporter
• Become a significant player in the global supply chain
• Build ecosystem comprising primarily of mobile phones, IT hardware, and
consumer electronics of US$ 1tn in next 10 years
Short-term goals in electronics manufacturing

• Build competitiveness and scale
• Shift and develop sub-assemblies and components ecosystem
• Build a design and components ecosystem
• Nurture Indian champions
• Steadily remove disabilities in India
India's EMS market poised for growth, offering end-to-end manufacturing services
The EMS industry in India was Rs 1,469bn in FY22, and is expected to see significant EMS companies have matured from
CAGR of c.33% to reach Rs 5,995bn by FY27. EMS companies can offer end-to-end being mere contract manufacturers to
services, right from design, assembly, production, testing to after-sales. There are more end-to-end support partners today
than 30 organized companies in the EMS industry.
Packaging,
Components Manufacture/ Configuration
R&D, IP Design Distribution & Marketing &
Fabrication & System & Testing
Ownership Services Repair Sales
Sourcing Asembly
Services
Low Maturity Medium Maturity High Maturity EMS Capability

Deep diving into India’s EMS industry

There are nearly 700 EMS companies in India, ranging from large, to mid-sized, to
small-sized players. Mobile phones, consumer electronics, and industrial electronics
contribute to c.75% of the market. Original Equipment Manufacturers (OEMs)/brands
are increasingly embracing the Original Design Manufacturing (ODM) model of
partnership and venturing into new product segments.
ODM OEM
• ODM model: OEMs increasingly prefer to engage on an ODM basis. Under this, EMS
companies design products as per the specifications provided by OEMs. They
source components, carry out fabrication and assembly, test the final product and
undertake logistics and after-sales services. This is a high-margin business and
comes at a premium for good designs.
• Contract Manufacturing Model: Under this model, OEMs provide design and
specifications to EMS companies, which in turn source components, manufacture
and/or assemble components and supply the finished products to OEMs.
ODM vs. contract manufacturing in India

Original Design Manufacturing (ODM) Contract Manufacturing
• The growth in EMS is primarily led
5,995
6000 by the ‘design service’ offered by
CAGR(FY22-27E)
ODM players. Generally, most such
5000 Overall EMS Industry– 32.5%
work is outsourced to cost-effective
Contract manufacturing– 32.3%
destinations – China, South Korea,
4000 ODM– 33.0%
Thailand
4778
• However, many EMS providers in
in Rs bn
3000
ODM (FY21-26E) CAGR – 43.3% 3597 India are slowly evolving to offer
1,846 complete design services apart from
2000 2624
1,469 contract manufacturing
1962
1000 853 1479
697 940 1176
553 1217
211 656 905
136 172 232 292 367 491
0
Source: Company data, PhillipCapital India Research Estimate

Note: These numbers are the contribution of EMS companies to manufacturing in India
EMS market segmentation by HVLM vs. LVHM

• High volume low mix (HVLM): In this type of process, the volumes are higher since In LVHM, assemblies are more critical,
the product requires very less assemblies of the mix of components. In short low customer stickiness is higher and
value addition, so margins are also very low. margins are much higher than HVLM
• Low volume high mix (LVHM): In this type of process, volumes are lower since
these products need high/critical assemblies of the mix of components. In short,
high value addition; so margins are very lucrative.

Indian EMS market split (HVLM vs. LVHM)

• Most companies in the LVHM space
HVLM LVHM cater to the needs of critical
applications in industrial, medical,
7000
aerospace, and defence segments.
6000 CAGR (FY22-27E):
High volume low mix: 33% 575
5000 Low volume high mix: 30%
427
in Rs bn
4000 • Most companies work in the HVLM

3000 328 space cater to the needs of mobiles,
5420
253 computer peripherals, consumer
2000 4076
197
2952 devices, storage devices, etc.
154
1000 106 116 2200
77 91 1315 1649
612 778 958 1056
0
Source: PhillipCapital India Research Estimate, Company Data
Since, most of the EMS players that we are initiating coverage on are majorly operating in HVLM segment, there is a
huge opportunity for them to scale up their operations with strong profitability.
Electronic manufacturing split by product segments (FY21) Electronic manufacturing split by product segments (FY26)
Market size: Rs 5.5tn Market size: Rs 15.1tn
Computer Computer
Strategic Hardware, Industrial
Strategic Hardware, Industrial Electronics, 8% Electronics,
Electronics, 5% Electronics, 4% 11%
6% 18%
LED lighting, Consumer
LED lighting, 2% Electronics,
3% 12%
Consumer
Electronics,
16%
Mobile
Phones, 52% Mobile
Phones, 63%
Source: Company Data, PhillipCapital India Research Source: Company Data, PhillipCapital India Research
EMS market by key segments in FY21 (Rs 1.2tn) EMS market by key segments in FY26 (Rs 4.5tn)
2.0% 1.3% 3.0% 1.8% 1.8% 1.4% 2.6%
3.1%
Current 3.1%
3.7% target Listed PCBA + EMS
5.8%
4.4% market companies are
3.2% focusing on this Rs
3.9%
12.9% 1.4tn opportunity
12.7% 67.5%
65.9%
Mobile phones (R.H.S) Cons. electronics (R.H.S)

Telecom Lighting
Mobile phones (R.H.S) Cons. electronics (R.H.S) Telecom Automotive Industrial
IT Medical
Lighting Automotive Industrial
Others
IT Medical Others
Source: PhillipCapital India Research, Company Data Source: PhillipCapital India Research, Company Data
Note: These charts include contribution by Indian companies to EMS market in India

The EMS industry in India should see a CAGR of c.34% from FY23 to FY27
EMS market break-up by industry verticals (in Rs bn) FY18 FY19 FY20 FY21 FY22 FY23 FY24E FY25E FY26E FY27E
Automotive 26 33 40 48 66 85 109 140 180 240
Industrial 28 33 37 40 58 69 82 97 115 155
Telecom 40 44 49 47 57 67 79 93 109 145
Medical 10 13 14 16 23 32 46 66 94 125
Aerospace & Defense 11 14 20 27 37 51 71 98 135 186
Others** 574 732 904 994 1,228 1,542 2,066 2,787 3,869 5,144
Total 689 869 1,064 1,172 1,469 1,846 2,453 3,281 4,502 5,995
Note: ** Others includes mobile phones, consumer electronics & appliances, IT hardware, lighting etc.
PC Estimates: This chart does not include the opportunity for railways + EV + Clean Energy + other Sectors
*Listed EMS player’s current target market of Rs 1,846 in FY23 is expected to grow to Rs 5,995bn
in FY27 – at a CGAR of 34%
Indian EMS Industry has c.700 manufacturers and Most of companies have a revenue
size of less than Rs 10bn
MNC Firms 6 - Large Global
Indian EMS (>100) MNC Firms
Industry >100 – Captive

MNC Firms
15 - Large
Indian Firms
We expect significant growth for
Indian Firms Indian firms, with the
MSME Firms
(~600) manufacturing eco-system like
700 firms complex PCBs, OSAT,
semiconductors, etc. coming to
in India 14 - Large 50 – Medium >500 – Small &
India
(No. of firms) MSME Firms MSME Firms Micro MSME Firms

Top global and Indian companies in the EMS segment in India

Company name Year of Entering India Revenue in FY22 (in Rs mn)
Global companies
Bharat FIH (Foxconn) 2007 18,149
Wistron Infocomm* 2017 8,095
Jabil Circuit India 2002 4,094
Sanmina-SCI technology 2007 1,493
Total 31,831
Large Indian companies
Dixon technologies# 1,21,976
We expect listed companies to grow
Amber Enterprises# 69,798
significantly with component eco-
PG Electroplast# 21,599 system coming to India
Syrma SGS technology# 20,484
SFO technologies* 15,405
VVDN technologies 11,718
Kaynes Technology# 11,261
DCX systems 11,023
Elin Electronics 10,937
Avalon technologies# 9,447
Centum Electronics# 9,288
Cyient DLM# 8,320
Genus Electrotech 3,154 Majority of EMS players
Shogini Technoarts 2,637 are operating at a
Ascent circuits 2,261 revenue of Rs. <10bn
Cipsa-Tec 830
Meena circuits 647
Total 3.30,785
*Note: We have taken FY21 revenues, because the data was not available
#Note: We have taken FY23 revenues
Roadmap to manufacture US$ 300bn electronics by FY26

According to India Cellular and Electronics Association’s (ICEA) vision document, GoI
expects to manufacture US$ 300bn worth of electronics by FY26, led by industries such
as industrials, consumer electronics, mobile phones, EV, telecom, railways as well as
other categories such as wearables and hearables, telecom equipment, defence
electronics etc.
We expect strong thrust in Printed Circuit Board Assembly (PCBA) in India with increase
in manufacturing, relocation of supply chains, and the component ecosystem coming
to India. Once India has developed competencies in assemblies, the industry is likely to
move to higher value-added manufacturing work.
Roadmap to manufacture US$ 300bn electronics by FY26

Product segment (in USD bn) 2021 2026 CAGR (2021-26)
Mobile phones 30 126 33%
IT hardware (laptops, tablets) 3 25 53%
Consumer electronics (TV and audio) 10 23 18%
Strategic electronics 4 12 25%
Industrial electronics 11 25 18%
Wearables & Hearables 0 8 140% Indian PCB assembly industry set to
PCBA 1 12 64% grow, aiming for a size of US$ 12bn by
FY26, driven by increased
Auto electronics 6 23 31%
manufacturing and supply-chain
LED lighting 2 16 52% relocations
Telecom equipment 0 12 127%
Electronic components 9 18 15%
Total 76 300 31%
Source: ICEA Vision document (Vol. 2), PhillipCapital India Research, Company Data
Note: The exports of electronics are expected to reach US$ 120bn by FY26, 11x current exports

PCBA: A game-changing opportunity

PCBA stands for Printed Circuit Board Assembly. It is the process of placing electronic
components such as resistors, capacitors, integrated circuits, connectors, and other
devices on their designated locations on the Printed Circuit Board, and then soldering
them in place to create a functional electronic circuit. PCBA is a crucial step in the
manufacturing of electronic devices as it transforms the bare PCB into a fully
operational electronic product.
PCBA is at the core of every electronic device – whether it is mobile phones, tablets,
computers, routers, televisions, washing machines, refrigerators, or air conditioners. It
has applications in many other industries such as automotive, railways, medical, power
electronics, telecom, industrial, aerospace, and defence. To develop India as electronics
manufacturing hub, it is imperative to bring in as many manufacturing operations as With semiconductors, OSATs, and bare
possible, and PCBA is a key manufacturing activity. At the start of PCBA operations, PCBs coming to India in next 2-3 years,
value addition should be about 3-5%, which can climb to 15-20% within two years. we expect value addition to increase by
50-60%
Most PCBA processes include:
1) Solder paste stencilling – This is the first step in PCBA; the paste is applied as a
settling glue on the PCBs.
2) Pick-and-place components mounting – The component mounting is a pick-and-
place activity, which can be performed manually or by an automated system.
3) Soldering – Soldering is performed to join components on the PCB.
4) Inspection – Inspection and quality testing are performed at every stage of the
manufacturing process, and comprise a mix of automated optical inspection and
manual inspection.
5) Post-assembly inspection and functional testing – Once the assembly is done, the
PCBs are inspected again and tested for functionality.
The business opportunity
Global PCBA market for targeted segments
Rs30671bn
Global PCBA Rs13120bn

If, 6% export
market size incentive PCBA exports market
Rs55130bn opportunity (cumulative basis)
Rs4783bn
If, 0% export
incentive
Rs6556bn
India market size for PCBAs
(for domestic and exported CBUs)
*during 2021-26)
Source: PhillipCapital India Research Estimate, PCBA reports

PCB assembly market in India (b2C) (in Rs bn); we expect CAGR of 38% over FY22-26
7000 6556 This segment’s revenue CAGR in India
will be 38% over FY22-26.
6000 We except currently India PCBA market
CAGR: 38.4% (Ex. Mobile) will be Rs c.800bn
5000 4470 (Consumer + B2B).
4000
in Rs bn
2906 Some of the key drivers of PCBA growth

3000 include:
CAGR: 26% 2310
1788 • Growth in ‘value added’ products and
2000 1406 services
1134
939 • Increasing demand for electronic
1000 568 730
447 products globally
• Requirement for high-speed assembly
0
FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24 FY25 FY26 • Miniaturization
Promoting the PCBA industry will have the following benefits:

• Shift of supply chains to India from China will reduce the overdependence
currently on China, thereby leading to diversification.
• It will reduce the trade deficit with China.
• Manufacturing will gain significant momentum in India, and the country could
become an export hub for the world.
• Components and ATMP units will be set up.
• Core SMT technology will take root in India.
• Multi-layer PCB manufacturing and PCB design can be realised.
• Testing lines and facilities will be set up.
• Industries such as factory automation and system integration will get a boost.
Government is incentivising localisation of PCBAs in India by:

• Supplying uninterrupted and consistent power.
• Freely allowing imports of plant and machinery for use in the PCBA industry.
• Permitting imports/exports of components freely and speedily.
• Improving infrastructure.
• Giving 6% export incentive, which will help build a global-scale PCBA industry in
India.
Impediments to scaling up PCBA manufacturing in India

Factors resulting in cost-reduction India Vietnam China
Corporate income tax exemption 0.7-0.9% 1.5-2% 2%
Subsidy for machinery and equipment Nil 0.20% 3%
Cost of power 0.6-1.2% NA NA
Interest subvention on working capital 0% 1.5-2% 3-3.5% Presently, China has the highest
R&D subsidy 0.15% 0.4-1% 2% government support for reducing costs
Incentive for supporting industry 0% 0.5-1% 0% of its PCBA manufacturing
Exemption of land rental 0% 0.50% 0.60%
Therefore, to directly compete with
Industrial land development support 0.40% 0.50% 0.60%
China, EEs will need government
Building Nil 0.30% 1%
incentives
Labour subsidy Nil 0.50% 2%
Logistics 0% 0.50% 1%
Factors affecting "ease of doing business" 0% 1.5-2.5% 2-3%
Duty free imports for creating fixed assets 0% 0.50% 0%
Incentive schemes 0% 0% 1-2%
Total 1.9-2.7% 9.4-12.5% 19.2-21.7%
Source: Industry reports, PhillipCapital India Research

More government support needed for the PCBA ecosystem to thrive

The dream of becoming global
Manufacturing PCBAs requires high-technology, capital-intensive Surface Mount electronics manufacturing hub cannot
Technology (SMT) and other machines, which need to work round the clock. If the be realized unless the government
government provides incentive support of 4-6% on exports, by 2025-26, cumulative provides more support to mitigate the
PCBA exports for India can touch c.US$ 109bn (ICEA estimates). Currently, India disabilities faced by the PCBA industry
exports only c.US$ 138mn of PCBAs.
PCBA opportunity in the B2C segment

The government’s efforts towards increasing localisation of electronics in India has led
to more assembly work taking place in India than earlier. India has rapidly scaled down
its imports of mobile phones and increased domestic manufacturing significantly in the
last 3-4 years. As a result, import of populated PCBs used in mobile phones and telecom
equipment has declined and exports are rising yoy.
Global market size for PCBAs for the B2C segment

Mobile phones Tablets and PCs Smart TVs, audio devices Consumer appliances
400
350 13 14
12 12 26 28
10 10 11 24 25
300 9 20 21 22
19 64 64
63 64 63 63
250 70
in USD bn
66
200
150
228 233 235 244 253
100 209 212 226
50
0
FY19 FY20 FY21 FY22 FY23E FY24E FY25E FY26E
Source: ICEA PCBA reports, PhillipCapital India Research

This is the market in which major
listed players like Kaynes, Syrma
Indian market size for PCBAs for B2C segment; ex-mobile PCBA market is Rs 1,417bn are present.
Mobile Phones Tablets and PCS Smart TVs, audio devices Consumer appliances
The Listed EMS players are having
7000 224 higher focus o B2B PCBA market.
373
6000
820
5000 149
224
in Rs. bn
4000
596
This chart shows the market
75 opportunity for PCBAs in consumer
3000 75 149
75 electronics. However, the actual
75 447 5141
2000 75 75 224 opportunity is much larger. Ex-
0 75 3502 mobile phones, the PCBA market in
75 149
1000 149 75 2235 India for consumer electronics is c.Rs
1937
1192 1490
969 1,417bn as on FY26E.
0
FY20 FY21 FY22 FY23E FY24E FY25E FY26E
Source: ICEA PCBA reports, PhillipCapital India Research Estimate

In mobile/telecom, we see a major reduction in imports and a significant increase in exports

due to increase in value addition and substantial government support in the form of policies
Imports of PCBAs used in mobile / telecom Exports of PCBAs used in mobile / telecom
350 313 35000
29694
300 30000
250 25000
20299
in Rs bn
in Rs mn
200 20000
147
150 15000
10455
100 10000
49 40 40 5102
50 5000 2859
0 0
FY18 FY19 FY20 FY21 FY22 FY18 FY19 FY20 FY21 FY22
Source: Industry report, PhillipCapital India Research Source: Industry report, PhillipCapital India Research.
Future: India emerging as a viable alternative in global supply chain
Source: ICEA

Exports opportunity for PCBA

The National Policy on Electronics (NPE) in India has set an objective of encouraging By importing components and
localization and exports in the entire value chain of ESDM, thus achieving a turnover of assembling them in its own country for
US $400bn (c.Rs. 26,00,000 crore) by 2025. As PCBA manufacturing gains momentum, the world, China created jobs.
backward integration will be a natural outcome. Catalysing manufacturing of PCBAs is
Similarly, by integrating “Assemble in
a step in the right direction. Once the capacity is built for import substitution, it could
India for the world” into Make-in-India,
become a big exports category from India, if suitable support is provided by the the country can raise its exports market
government. The large scale of operations will positively influence the manufacturing share to 3.5% by 2025 and 6% by 2030
environment and help to bring in vendors supplying inputs to PCBA manufacturing,
such as components, PCB, solder paste, cleaning agents, and other raw materials. If the
scale gets sufficiently large, the design and manufacturing of multilayer PCBs in India
could get a major boost.
Exports opportunity for PCBAs from India for the electronics Exports have shaped up significant opportunities for Indian
industry listed companies; Avalon and Cyient having the highest share
Mobile Phones Tablets and PCS
Exports Share- FY23 Export CAGR - FY20-23
Smart TVs, audio devices Consumer appliances
70%
3500
2,950 60%
59%
75 60%
3000
246 47%
2,093 50% 44%
2500
589
52 40%
2000 1,497
in Rs. bn
164 31%
1,013 30 417 30%
1500 112 20%
60 291 20%
1000 15 2041
454 171 8% 9%
1460 10%
500 0 1065
767
454 0%
0 Syrma SGS Kaynes Avalon Cyient DLM
FY22 FY23E FY24E FY25E FY26E technology technology technologies
Electronics manufacturing to shift to India from China

Historically, the electronics industry had moved in search of lower manufacturing costs PCBAs, semiconductors, OSAT and
from the US – then to Japan, to Korea, to Taiwan, and eventually to China. In 2018, complex and bare PCBs will significantly
China had the largest share of 28.4% of the global manufacturing output. We believe increase the opportunity for Indian
there will now be a significant shift in operations – to India. players
With many more companies setting up SMT capacity in India as well as undertaking
manufacturing of box-builds solutions, we expect tremendous opportunity for the
exports sector. Various countries that were dependant on China, Vietnam, and other
countries for box builds, as well as PCBAs, will now look at India as well.
As India gains scale in manufacturing, and as and when the component ecosystem
develops in the country, the cost of production will come down further, making India
the only low-cost alternative manufacturing destination for the world. PCBA players in
India are already catering to North America, but with higher scale, we expect exports
to start to other countries in Europe as well.

Printed Circuit Board (PCB)

Electronic manufacturing is gaining momentum in India, and since a PCB is the backbone
of any electronic product, there will be rapid surge in demand for PCBs in India. Majority
of the demand for PCB will be in the form of bare printed circuit boards, and their
assembly will happen in India.
PCBA
What is PCB?
A Printed Circuit Board (PCB) is a flat board composed of non-conductive materials like
fiberglass or composite epoxy. It acts as a platform for interconnecting electronic
components. PCBs are integral to nearly all electronic devices and provide a base for
assembling electronic circuits.
PCBs are available in different sizes and configurations, ranging from single-layer with
a single copper layer to multi-layer boards with multiple stacked copper layers
separated by insulating material. They provide a compact, reliable, and efficient means
of connecting and organizing electronic components, playing a vital role in modern
electronics manufacturing.
Printed Circuit Board Assembly (PCBA) refers to a PCB with all components mounted
and soldered, endowing it with the intended functionality. The PCBA is interconnected
with additional components such as displays, sensors, and more, and is enclosed within PCB
a housing. Thus, the PCBA serves as the core or heart of any electronic device,
orchestrating its operation and performance.
Value chain of PCB industry, India

Companies either have in-house design
teams for PCB design (e.g., ITI Ltd, Majority of the electronic components
Genus) or outsourced design companies (transistor, diode, resistor,
(e.g. Sienna, Wuerth) who support microcontroller, etc.) are imported
manufacturing companies
PCB design (PCBD) Electronic components
Bare PCB Electronic product

Raw material suppliers PCB assembly (PCBA)
manufacturing (PCBM) assembly (OEMs)
Due to lower prices and lack of Some large companies like AT&S, PCB design (PCBD)
PCBA refers to the component OEMs produce the final product,
raw material availability, Epitome, and Ascent Circuits are placement on the bare board of either through subcontracting or
infrastructure, and other factors, only into manufacturing. They get PCBs. Several electronics in-house manufacture
about 90% of bare PCBs are designs from various clients components are soldered on the
imported circuit board
Key raw materials Types of PCBs Process of PCBA
• Copper clad laminates • By type of layers (single, • Process of PCB assembly

• Prepegs double, and multi-layered) (PCBA) is either through SMT
• Solder mask • By types of substrate (rigid, (surface mount technology of
• Flux flexible, and metal core) THT (thru-hole technology)
• Silk screen
• Tin, nickel, etc.
• Chemicals
• Adhesives

India moving towards complex PCBs

PCBs may be single, double, or multi-layered. Single-layered ones are the first-generation
of PCBs, used in simple electronic devices. As the products became complex, so did the
PCBs. Multilayer PCBs are the rule rather than an exception. Smartphone PCBs can have
up to sixteen layers, while military electronic equipment may even have a hundred layers.
Components may be mounted on one side of the PCB, referred to as single-sided PCBAs,
or both sides of the PCB, referred to as double-sided PCBA.
Overall PCB demand in India, FY20
PCB as part of
Rs 40bn
PCBA
FY20, overall PCB Rs

Rs 200bn Imported bare PCBs
demand in India 148.25bn
Imported bare PCBs

Rs 160bn + domestically
sourced bare PCBs
Domestically
Rs 11.75bn
sourced bare PCBs
Source: Industry report, PhillipCapital India Research
PCB demand in India is expected to grow to Rs 525bn by FY26 PCB consumption by different product segments
Overall PCB demand Bare PCB demand
600 Consumer
Overall PCB demand: CAGR of 17.4% 525
(FY20 to FY26E) 498 Electronics,
500 Bare PCB demand: CAGR of 20.8% 23%
422 Industrial
(FY20 to FY26E) 388 Electronics,
400
341 39%
304
300 276
225 240
200 183 191
200 160 152 Mobile, 16%
100
LED lighting, Computer Strategic

0
9% Hardware, Electronics,
FY20 FY21 FY22 FY23E FY24E FY25E FY26E
6% 7%
Source: Industry report, PhillipCapital India Research Estimate Source: Industry report, PhillipCapital India Research Estimate
Note: Overall PCB: Bare PCB + Few components already mounted on the board
Segment-wise expected growth in domestic PCB demand (in INR bn)

Industrial Electronics Consumer Electronics Mobile Phones
LED lighting Strategic Electronics Computer Hardware CAGR in domestic PCB demand
200 Computer hardware: 30%
Mobile phones: 27%
167
Consumer electronics: 14%
150
139 LED lighting: 12%
Industrial electronics: 10%
100 76 Strategic electronics: 9%
97
43 56
50
42
38 19 23
13
0 11
FY20 FY26E
Source: Industry report, PhillipCapital India Research Estimate

Details about PCBs in the Indian market

Product type Application Layer Segment Laminate Manufacturing
Rigid 1-2 sided Consumer electronics Single-Sided Rigid PCBs FR-4 Bare PCBs
Standard multilayer Communication Double-Sided Flexible PCBs Polyamide Populated PCBs
Flexible circuits Industrial electronics Multi-Layer CEM-1
HDI Computers Paper
Rigid flex Military & Aerospace Others
Others Automotive
Medical
Others
Most of the complex work still being done outside India

Single-sided and double-sided PCBs accounted for almost 2/3rd of bare PCB usage in
Manufacturing of complex PCBs in India
India in FY20. This means that most of the complex assembly work is still majorly being will increase significantly. We expect
done outside India or is being imported as PCBAs in India. However, this is now players like Kaynes, Syrma, Avalon and
changing, and there could be significant growth in multi-layer PCB usage in coming Cyient DLM to enter into complex PCBs
years. Multi-layer PCBs, which accounted for only 6% market share in FY19, jumped to in the next 1-2 years
31% in FY20. They are widely used in mobile phones, televisions, medical electronics,
and to some extent in strategic electronics.
Bare PCB market split by types in India (FY20) Bare PCB split by end-user industry vs. types in India (FY20)
Otherrs, 5% Single-sided Double-sided Multi-layer Flex
Computer Hardware 91% 9% Rs 8.4bn

Single-sided,
33% Rs 10.3bn
Strategic Electronics 10% 40% 30% 20%
Double-
sided, 31%
LED lighting 80% 10% 10% Rs 18.3bn
Mobile Phones 80% 20% Rs 17.3bn
Consumer Electronics 10% 13% 69% 8% Rs 32.2bn
Industrial Electronics 47% 42% 10% 1% Rs 72.7bn
Multi-layer, 0% 50% 100%

31%
Source: Industry report, PhillipCapital India Research Estimate Source: Industry report, PhillipCapital India Research Estimate
Two-layer PCB cost break down

Managing Profit, 7% Base
cost, 3% Material
(FR4), 15%
Testing &
Shaping, 3% Chemical
material, 4%
Solder mask
& silk screen,
12% Drilling fee,
9%
Photo
Etching, 12%
Plating &
Finishing,
35%
Source: PhillipCapital India Research, Company data

Bare PCB market split by domestic manufacturers in India

BLG Electronics, Fine line, 1.50% Multiline, 1.90%
1.20% Avalon, 1.70% Circuit systems,
Others, 15.90% 2% Meena Circuits,
2.50% Large part of the PCB demand in India is
Genus, 2.60% still met through imports.
Vintek, 2.70% With increasing PCBA presence in India,
Micropack, 3.40% bare PCBs + components manufacturing
Cipsa Tec, 4% should increase
Sahasra, 4.70%
AT&S, 28.50%
Ascent, 7.40%
Shogini, 9%
Epitome, 11%
Expertise of leading PCB manufacturers in India

Manufacturing
Company PCB offering Types of PCB manufactured Segment focus
location
Double-Sided PTH PCBs, Metal
Smart phones, Tablets,
Nanjangud, Core PCBs, Multilayer PCBs, HDI Single Sided, Double Sided and
AT&S India Pvt. Ltd. Wearables, Automotive,
Karnataka any layer PCBs, Flexible & Rigid Multi-Layer
Industrial and Medical
Flexible PCBs
Ahmednagar, Single Sided PCBs, Double Sided Single Sided, Double Sided and Consumer Electronics, IT
Epitome Components
Maharashtra PCBs and Rigid Flexible PCBs Multi-Layer Hardware, Others
Single Sided PCBs, Double Sided Consumer Electronics, IT
Single Sided, Double Sided and
Ascent Circuits Pvt. Ltd. Hosur, Tamil Nadu PCBs, Multilayer PCBs and Rigid hardware, Strategic Electronics
Multi-Layer
Flexible PCBs and Mobile
Single Sided PCBs, Double Sided
Single Sided, Double Sided and Consumer Electronics, IT
Shogini Technoarts Pvt. Ltd. Pune, Maharashtra PCBs, Multilayer PCBs and
Multi-Layer Hardware, Others
Metal Clad PCBs
Tumkur, Andhra Double Layer PCBs, Multi-Layer Consumer Electronics, IT
Cipsa-Tec India Pvt. Ltd. Double Sided and Multi-Layer
Pradesh PCBs and Metal Clad PCBs Hardware, Others
Vintek Circuits (India) Gurgaon, Haryana Single Sided PCBs Single Side Consumer Electronics, Others
Defence, Space, Telecom,
Bangalore, Copper Rigid PCBs and Rigid
Micropack Ltd Double Sided and Multi-Layer Medical Electronics and
Karnataka Flex PCBs
Industrial Electronics
Single Sided, Double Sided and Single Sided, Double Sided and Consumer Electronics, Energy &
Meena Circuits Pvt. Ltd. Vadodara, Gujarat
Multi-Layer Multi-Layer Utility, Automotive & Medical
Financial data of leading PCB manufacturers in India

Company (Rs. in mn) FY Revenue EBITDA EBITDA Margin PAT PAT Margin ROCE ROE Asset Turnover
AT&S India Pvt. Ltd. FY22 7083 655 9% 66 1% 5% 5% 1.20x
Epitome Components FY21 1,926 330 17% 177 9% 26% 17% 1.23x
Ascent Circuits Pvt. Ltd. FY22 2,275 305 13% 159 7% 12% 10% 1.12x
Shogini Technoarts Pvt. Ltd. FY22 2,643 148 6% 2 0.1% 28% 1% 8.01x
Cipsa-Tec India Pvt. Ltd. FY22 830 60 7% 10 1% 4% 2% 1.63x
Vintek Circuits (India) FY21 437 75 17% 31 7% 11% 9% 0.77x
Micropack Ltd FY22 800 181 23% 88 11% 18% 14% 1.04x
Meena Circuits Pvt. Ltd. FY22 648 14 2% -1 -0.2% 2% 2% 2.41x
We expect listed EMS players to enter into bare board manufacturing that will help in
improving margins and working capital.

Number of PCB players in different countries in the APAC region

PCB companies in APAC region India China Vietnam Thailand Taiwan
PCB manufacturers 182 581 11 13 78
PCB assembly 154 211 13 13 35
PCB designers 113 90 6 1 7
Source: PCB directory, PhillipCapital India Research
India already has strong capabilities in PCB assembly and designing, which will help
the country to become the biggest beneficiary of the China +1 strategy vs. other EEs.
With its entire focus on domestic manufacturing (Make in India), India has the
potential to become a global manufacturing powerhouse, competing with China.
FY22: Comparison of presence of key EMS companies in India in the application segment
Name of the EMS Company Clean Energy Automotive Railways A&D** Industrial Telecom Medical CEA& Others#
Avalon Technologies Ltd         
Syrma SGS Technology Ltd         
Kaynes Technology India Ltd         
Cyient DLM         
Dixon Technologies India Ltd         
Amber Enterprises India Ltd         
Elin Electronics Ltd         
Centum Electronics         
Bharat FIH Ltd         
SFO Technologies Pvt Ltd         
VVDN Technologies Pvt Ltd         
** A&D - Aerospace & Defence: &CEA - Consumer electronics and appliances # Others include Mobile phones, IT Hardware, Lighting, Energy, Power, etc.
Source: Company Data, Industry report, PhillipCapital Research data
Classification of application segments in volume and margin matrix
Engineering: Key to high-margin play

High Volume
Mobile Phones
Consumer RFID
IoT
Lighting
Low Margin High Margin

Clean
IT Automotive Telecom Energy
Railways
Industrial
Medical
Aerospace &
Devices
Defence
Megnetics
Low Volume
Source: Company Data, PhillipCapital India Research Estimate

Key players that we are covering work in high-margin segments • Syrma is between first and fourth
Player-wise revenue mix and margins Syrma Kaynes Avalon Cyient DLM quadrant as industrial and consumer
are major revenue contributors
Automotive 19.7% 38.0%
• Kaynes is in the fourth quadrant as
Industrial 31.4% 27.0% 30.5% 25%
Railways 1.8% 12.0% 21.6%
automotive and industrials are major
Medical 8.0% 6.0% 7.7% 16% revenue contributors
IT/ IoT 7.0% 6.0% • Avalon is in the fourth quadrant as
Consumer 32.2% 9.0% industrial, railway and clean energy
Clean Energy 21.7% are major revenue contributors
Communication 8.5% • Cyient is in the fourth quadrant as
Others 8.0% industrial, A&D and healthcare are
Aerospace & Defense 2.0% 2.1% 58% major revenue contributors
Overall gross margin (%) 24.8% 30.2% 35.78% 22.5%
Overall OPM (%) 9.2% 14.9% 11.9% 10.5%
PCBA as a % of overall Bill of Material (BoM) cost for target segments

EMS market break-up by industry applications PCBA as a % of BoM- PC Estimate
Mobile phones 45%
Consumer electronics 10% In most applications, PCBA forms a
Telecom 10% small portion of overall costs. So, we
Lighting 8% estimate that this process will be
Automotive 13% majorly outsourced.
Industrial 13% As a result, EMS companies (Avalon,
IT 40% Kaynes, Syrma and Cyient DLM) will be
Medical 25% major beneficiaries
Others 20%
Source: PC estimates, PhillipCapital India Research
Note: Others include some of A&D, energy etc.
High-volume PCBAs can be broken down into four major cost areas
Cost of Tooling costs, 3%
component
assembly, 13%
Cost of PCB
material and
fabrication, 23% BoM cost, 61%
Source: PhillipCapital India Estimate, Company data
The mix of box builds vs. PCBAs differs from product to product
Box Builds PCBA only In India, EMS companies are majorly
100% making PCBAs and moving towards
20% 25% higher value-added services such a box-
80%
builds. India has scaled up its share of
62%
60% 74% box builds tremendously in at least a
100% 100% few product segments such as mobile
40% 80% 75% phones, lighting, computer hardware
20% and consumer electronics
38%
26%
0%
This is the focus area for
Lighting Strategic Computer Industrial Consumer Mobile
listed EMS players like
Electronics Hardware Electronics Electronics
Kaynes, Avalon, Syrma
Source: Industry Reports, PhillipCapital India Research and Cyient DLM
Note: In box build, an OEM outsources the complete product manufacturing process to an EMS company, which
manufactures the final product, adds the OEM’s logo and dispatches it to the OEM’s warehouse for selling.

The prospects of backward integration for EMS

companies
The semiconductor value chain starts with chip design and manufacturing, followed by
wafer testing, chip packaging, and OSAT services to ensure chip functionality. The
packaged chips are then assembled onto a PCB in the PCBA phase, leading to system
integration and the creation of end-use electronic products.
Stage 1 LOCATION KEY PLAYERS

➢ Fabless* semiconductor ➢ Intel
Design companies ➢ Samsung
Semiconductor chip designs are created
➢ Electronics manufacturers ➢ Taiwan Semiconductor
for either specific or general product
➢ Independent design companies Manufacturing Company
usage
(TSMC)
➢ LAM Research
Stage 2
Manufacturing ➢ Foundries ➢ United Microelectronics
Front end: Each wafer is diced into ➢ Captive Factories (IDMs) Corporation (UMC)
multiple chips (devices). Silicon wafers ➢ Semiconductor Manufacturing
While the foundry model separates
are processed through complex and International Corporation
semiconductor manufacturing
extensive series of manufacturing steps (SMIC)
steps to different companies, IDMs
➢ Samsung Foundries
traditionally manufacture their
➢ TSMC
own chips
➢ Global Foundries
Stage
Stage 33
Manufacturing
Manufacturing ➢ Outsourced Semiconductor ➢
➢ Amkor Technology
Amkor Technology
Back end: Packaged chips are tested Assembly and Test (OSATs) ➢
➢ Chipmos Technologies
Chipmos Technologies
Back end: Packaged chips are tested ➢
➢ King Yuan
King Yuan Electronics
Electronics Co
Co
under different electrical and
under different electrical and ➢
➢ Powertech Technology
Powertech Technology Inc
Inc
temperature conditions.
temperature conditions. ➢
➢ Advanced Semiconductor
Advanced Semiconductor
Chips are assembled into packages to
Chips are assembled into packages to Engineering (ASE
Engineering (ASE Group)
Group)
form the electronic components that
form the electronic components that
can be mounted onto circuit boards
can be mounted onto circuit boards
Stage 4
➢ Original Equipment Global Players
End Product Integration Manufacturers (OEMs) ➢ Jabil lnc.
Chips are integrated by EMS and OEM ➢ Electronics Manufacturing ➢ Flex Ltd.
companies to create end products Service (EMS) ➢ Sanmina Corp.
➢ PLexus Corp.
Indian Players
➢ Dixon Technologies
Stage 5 ➢ Cyient DLM
➢ Kaynes Technologies
Consumption ➢ SFO Technologies
End products are shipped to companies, ➢ Avalon Technologies
retailers and consumers worldwide for a ➢ Syrma SGS Technology
growing number of applications
*Companies that only design chips and outsource manufacturing are sometimes referred to as “fabless” companies.
Source: ASE Group, PhillipCaptal India Research Estimate

Major players in Semiconductor value chain and their market cap
$121.35bn $309.7bn
$1170 $136.87
$372.83
$15.89
$189.91
$484.57
$71.13 $143.90
Source: Quartr & squall, PhillipCapital India Research Estimate
EMS companies are now focusing on backward integration and bringing OSAT services
(Stage-3 backend manufacturing) under their preview. OSAT service involve testing
Growth drivers for OSAT include:
packaged chips to ensure their functionality and reliability under various electrical and • Increasing demand for semiconductor
temperature conditions. components
• The complexity of packaging
The OSAT sector has gained considerable traction in recent years due to the growing processes
demand for semiconductor components across various industries. As a result, EMS • Cost optimization needs
companies such as Kaynes and Cyient DLM have recognized the potential of OSAT • Access to advanced technologies
services and are actively thinking of incorporating them into their portfolios.
Performance of Global OSAT Companies

In 2021, 5% of global OSAT capacity was physically located in the United States;
majority capacity was in China (38%), Taiwan (19%), and South Korea (9%).
OSAT market size in US$ bn
100 Market size in USD Bbn
80
As per Mordor Intelligence’s reports,
60 APAC region will see the highest CAGR
in OSAT services
40
20
0
FY 2023 FY 2028
Source: Mordor Intelligence, PhillipCapital India Research
Key players in the global OSAT market

Performance of key players

Revenue from operations of key OSAT players (FY17-21)
Amkor Technology (USA) Chipmos Technology (China)
King Yuan electronics Co (Taiwan) Powertech technology (Taiwan)
ASE Group (Taiwan)
1000 CAGR (FY17 to FY21)
Amkor: 10%; ChipMos: 11%
900 KYE: 14%; PT: 9%; ASE: 18%
800
New Taiwan (NT) $ in bn
700
600 570.0
500 477.0
371.1 413.2
400
290.4
300 83.8
76.2 33.8
200 59.6 68.0 66.5 29.0 27.4
19.7 20.8 25.5 23.0
17.9 18.5 20.3
100 156.6 190.3
130.4 133.8 125.6
0
FY 17 FY 18 FY 19 FY 20 FY 21
Note: As of report date, 1 NT$ = 2.64 INR
Gross profit margin (FY17-21) EBITDA margin (FY17-21)

Amkor Technology Chipmos Technology Amkor Technology
King Yuan electronics Co Powertech technology Chipmos Technology
35% ASE Group 25%
King Yuan electronics Co
30% 31%
26% 20%
25%
23%
% of Revenue
% of Revenue
20% 15%
20%
19%
15% 10%
10%
5%
5%
0% 0%
FY 17 FY 18 FY 19 FY 20 FY 21 FY 17 FY 18 FY 19 FY 20 FY 21
PAT margin (FY17-21)

Amkor Technology Chipmos Technology When compared with Global EMS
King Yuan electronics Co Powertech technology companies, global OSATs have had
20%
ASE Group better gross, EBITDA, and PAT margins.
This makes OSATs a significant
15% opportunity for EMS companies that are
focusing on backward integration
10% The Government of India has also

recognized this opportunity and
launched ‘Modified Programme for
5%
Semiconductors and Display Fab
Ecosystem’ in September 2022.
0% In this policy, fiscal support of 50% of
FY 17 FY 18 FY 19 FY 20 FY 21 capital expenditure will be provided for
setting up OSAT facilities in India

We expect positive news flow to continue…
Aiming high. Chinese electronics UK-based firm plans to set up semiconductor

component makers look to form JVs unit worth ₹30,000 cr in Odisha
with Indian players
Packaging semiconductors as important as India a key destination to strengthen global

supply chains for Taiwanese tech firms: Dy Min
manufacturing them, says Rajeev Chandrasekhar for Taiwan's National Development
China to restrict exports of chipmaking

materials as US mulls new curbs
Faster visas for Chinese

Lam Research Unveils Plans to Advance India’s
experts in electronics sector
Semiconductor Workforce Development Goals on the cards
India next big destination for Microchip Technology to

semiconductor makers, says Ashwini invest $300 million to
Vaishnaw after Micron's investment expand India operations
Government in talks with multiple semiconductor

companies for major investments over the next one
year: Ashwini Vaishnaw
Work on Micron semiconductor factory to start in

4-6 weeks: IT Minister Vaishnaw
First Made-in-India semiconductor chips to be out by

Dec 2024, says Union Minister Ashwini Vaishnaw

Boeing sees demand for 2,200

jets in India

Case study: Can the success of the IT industry be

replicated in the Indian EMS industry?
The Indian IT industry has seen exponential growth after the economic reforms of
1991-92. The swift advancement within the IT industry and the government’s India’s share in global trade of EMS
liberalisation policies – such as reducing trade barriers and eliminating import duties likely to increase to 8.1% by FY26 from
on technology products – are instrumental in the evolution of the industry. The IT 1.8% at present
sector has increased its contribution to GDP to almost 10% in 2019 from just 1.2% in
1998.
In EMS, India already has:
Reasons that contributed to the exponential growth of the IT industry in India: Large talent pool
• India has a huge pool of technically skilled manpower that provided a great boost Labor arbitrage
to transform India into a major software hub. Favorable government
• In terms of labour availability and cost, India is very competitive when compared policies
to other nations, which led to strong growth over the last 2-3 decades. Large domestic market
• Good capability development by Indian companies across tech cycles.
What we require?
• Supportive government policies.
Technology partnerships
• Rapid introduction of IT services in major sectors such as telecom, BFSI and more.
Component ecosystem
• Low cost of operations and tax advantages. Higher incentives
• Strong growth in exports demand.
The IT industry saw strong CAGR from FY01-10 Even after scaling up in FY02-FY10, IT saw double-digit CAGR
in FY11-23
TCS Infosys Wipro
350 TCS Infosys Wipro
2500
300
FY11-23
250 FY04-10 2000
Infosys (6-year CAGR): 15%
Infosys (6-year CAGR): 30%
TCS (12-year CAGR): 16%
TCS (6-year CAGR): 26%
200 1500 Wipro (12-year CAGR): 9%
Rs mn
Rs mn
150
1000
100
500
50
0 0
India's EMS industry to benefit from diversifying global supply chains

The pandemic caused a disruption in supply chain operations across the world due to
the overdependence on one country (China) for hardware needs. With global giants IT companies like Wipro and Infosys
looking to diversify their supply chain bases, India seems to be in a sweet spot not only were trading at an average 2 year
because it is a large consumption market, but also because it has a huge talent pool, forward PE of c.+100x between 1999-
favourable government policies in place (that are incentivising manufacturing across 2001. It means before a revolution
the spectrum of EMS), and a developing component ecosystem. starts the companies start re-rating.
We expect the same to repeated in
We expect the EMS industry in India to scale up significantly, both in terms of domestic EMS as well. (Refer page 46)
demand and exports, backed by significant capex in assembly operations that are
moving towards higher value addition and complete manufacturing of hardware. The
hardware industry in India is at a very nascent stage (where the IT industry was 20 years
ago) and with a shift in manufacturing operations from China and other nations to
India, the EMS industry will see strong double-digit CAGR in the next 10-20 years.

Case study – Will China still remain the dominant

player for EMS outsourcing?
Why did China emerge as a PCB production and assembly hub?
• In 1980, North America, Europe and Japan held 80% share in PCB production. This
reduced to 15% in FY20-21. In this period (1980-2021), China’s share of world PCB
production increased to a dominant 56% from just 2%.
• China became the outsourcing centre of the world because of its cost
competitiveness, favourable government policies, and investment on R&D, etc.,
due to which other big companies from Taiwan, Japan, etc., invested in China to
setup their facilities – which further added technology advancement to the
country.
China dominates the world PCB market Global semiconductors (chips) market split
US, 4%
ROW , 6% US, 13% China , 15%
ROW , 7%
Asia Pac
(others), 34% China , 56%
Asia Pac
(others), 65%
Source: Industry, PhillipCapital India Research Source: Company Data, PhillipCapital India Research
China PCB production trend

China PCB Production (USD Mn) Y-O-Y (%)
60000 100%
2017: Automotive IOT, 5G,
etc.
50000 2008-09: Financial Crisis CAGR 2017-2021: 16% 80%
2002: Start of I-Phone CAGR 2009-2016: 10%
PCB manufacturing.
40000 CAGR: 1990-2001: 16% 60%
CAGR: 2002-2008: 26%
30000 40%
20000 20%
10000 0%
0 -20%
Source: Industry, PhillipCapital India Research

What are the changes in China that are helping players outside China?
• The new PCB Act 2019 in China led to the closure of c.30 % of its existing PCB
shops in FY22. The Act imposed strict guidelines such as:
According to estimates, there were
1. New facilities to be built in commercial industrial parks only. c.1,500 PCB shops in China in FY18,
2. Strict criteria to apply for financial-aid, business loans – which resulted in which are now down to c.1,000 as of
restrictions on new/small capacities. FY22. They are likely to be negatively
3. Average capacity utilization to be at least 50% of the capacity installed, or affected over the next 3-4 years, leading
producer would be eliminated (consolidated). to a shift to other destinations
• China and US trade war resulting in American players thinking about moving out
of mainland China: Major American manufacturers, including Apple, Dell, and
Hewlett-Packard have decided to move their production/assembly and supply
chains out of mainland China. By 2027, they expect all their American-market
products to be assembled outside mainland China.
Companies moving out of China over the last 3-4 years
Source: Company Data, PhillipCapital India Research
• China now has strict environmental laws: Due to China’s strict environment
regulations, companies have to spend money on treating waste, resulting in higher
expenditure. Violations will mean steep fines and penalties. This will mostly impact
mid-to-small companies because it will increase their compliance cost and if they
are not compliant, then their production will be reduced or their plants will be
closed.
• Rising labour costs in China: These will have a negative impact on large players
looking to outsource from China or to set up new facilities in that country. This will
also depress margins of existing players in China.

China’s average manufacturing wages have increased by a whopping 12x since 2000
China Avg.Manufacturing Wage (In CNY) Y-o-Y (%)
120000 25%
97,528
100000
20%
80000
15%
60000 55,324
10%
40000
26,399
5%
20000
8,750
0 0%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Source: Tradingeconomics.com, PhillipCapital India Research

Product portfolio of companies that we are initiating.

Company and its
Few of the products Images for reference
major segments
Avalon
Clean Energy EV charging point, Energy
systems (battery
management systems, etc.),
Solar energy products,
Hydrogen related products
(invertor, etc)
Industrials Power storage, Power

transmission and distribution
systems, automation
Mobility:
Aerospace Engine parts, seat frame,
smoke detector, etc
Railway Signalling system, tracking

system, etc.
Automsotive Electronic dashboard, digital

cockpit, etc.
Communication 5G, Satellite, Digital

infrastructure (tracking
system, etc.)
Kaynes
Automotive Cluster PCBA, Windowlift
motor PCBA, etc
Industrial EV (majorly e4W), Engine

control panel, industrial UPS,
street light controller, etc
Railways Audio frequency circuit, on

board cubicle, etc.
Consumer Wearables, Bluetooth

speakers, chargers, etc.

A&D Electronic safe arm & fire

devices, LRU cable
assemblies, etc
Healthcare Dental chair controller unit,

ventilator and respirator, etc.
IoT/IT RFID gateway (fasttag),

industrial tablet, bar code
scanner, etc
Syrma
Automotive EV (majorly e2W) – battery
control unit and battery
management systems, head
and tall lamps, cluster, fuel
dispensing controller
Consumer AC, brushless direct control

motor (BLDC) module for
fans, Smart home solutions,
water purifier, mixer grinder,
smart electronics like
wearables, wi-fi, etc
Industrial Smart energy meters,
industrial power supplies,
solar supplies. 5G
infrastructure, etc.
Healthcare X Ray controllers, WBI boards,

glaucoma detection, smart
cane, CPAP devices
IT motherboards, memory
modules, hard disks, SSD,
flash drives
Railways CPU board, DO Generic, WBI

boards, electronic
interlocking systems
Cyient
A&D Cockpit display units,
navigation systems,
surveillance radar systems
Industrial Smart meters, clean energy

products, flow and
measurement and analysis
units
Healthcare Patient Monitoring systems,

X-ray. MRI subsystems,
ultrasound imaging systems,
etc.
Source: Company website, PhillipCapital India Research Estimates

Significant positive developments across key target

industries
SEMICONDUCTOR INDUSTRY
Taiwan seeks investment beyond chips, to strengthen ties with India
AEROSPACE AND DEFENCE
TELECOM
RENEWABLE/CLEAN ENERGY
Source: Elcina, PhillipCapital India Research

Looking at who is placed where in the industry

Plant location of major listed and unlisted PCB+PCBA companies
Syrma ; Kaynes
Syrma; Kaynes
Avalon also has 2 manufacturing

facilities in the United states (US)
Genus Electrotech
Kaynes; SFO Technologies;

Shogini Technoarts;
Epitome Components
Cyient DLM South is a big cluster for PCB
Syrma; Kaynes; Avalon; and PCBA companies due to
proximity to ports
Cyient DLM; Centum Electronics;
SFO Technologies;
SFO Technologies; Syrma; Avalon; Avalon; Ascent Circuits
Syrma has the highest SMT lines; Kaynes will double its SMT Top-two big players are diversifying their customer and
lines over FY23-25 segment mix; some players are focusing on the
specific/specialised segment
Syrma SGS technologies Kaynes Technologies
Avalon Technologies Cyient DLM FY20 FY23 57%
60%
30 50% 50%
Top 5 Customers (% of Sales)
27
50% 46%
24 41%
25 39%
20 40% 35% 35%
No of SMT lines
20
15 30%
15
11 11 11 20%
10 8 8
6 6 6 10%
5
0%
FY20 FY23 Post Expansion technology technology technologies
Source: Company Data, PhillipCapital India Research estimates Source: Company Data, PhillipCapital India Research estimates

All the listed companies have strong order books. Export has also shaped up significant opportunity for Indian
companies
Syrma SGS technology Kaynes technology
100 Avalon technologies Cyient DLM Exports Share- FY23 Export CAGR - FY20-23
70%
59% 60%
24 60%
80 Rs Bn
3x 47%
50% 44%
12
60 40%
1.3x 31%
8 26 30%
40 2.4x 20%
9
20%
11 8% 9%
20 1.5x 10%
31
20 0%
FY23 -Revenue FY23-Order Book technology technology technologies
Indian listed + unlisted PCB+PCBA players make up a revenue of c.Rs 145bn

Ascent circuits, 2.9 Epitome
components, 3.1 Syrma SGS
technology, 20.5
Shogini
technoarts, 3.4
The addressable PCBA industry size in
Genus Electrotech, FY23 was Rs 800bn
3.8
Of this, domestic players cater to only
Kaynes 18%, which means there is a significant
technology, 11.3 growth opportunity
SFO technologies,
23.1
Avalon
Revenue as of FY23 in Rs bn Centrum technologies, 9.4
Electronics, 9.2 Cyient DLM, 8.3
Source: Company Data, PhillipCapital India Research estimates. *Others: 100 units have revenues of c.Rs 50cr each.
FY23-26, automobiles avg. CAGR of c.33% FY23-26, industrials avg. CAGR of c.32%
25000 Syrma SGS technology Kaynes technology
Syrma SGS technology Kaynes technology 40000
Avalon technologies Cyient DLM
35000
20000
Automobile Revenue (Rs Mn)
3,830
Industrial Revenue (Rs Mn)
30000
4,933
15000 10,904 25000
20000
12,611
10000
15000
2,087
4,279 10000 2,741
5000 9,675 3,041
838 12,259
5000 1,790
718 4,029 1,160 6,422
1,358 3,060
0 0
FY19 FY23 FY26E FY19 FY23 FY26E

Kaynes, followed by Avalon, will see strong growth in Cyient has a strong portfolio in A&D. We expect its revenue
Railways over FY23-26 CAGR at c.22% over FY23-26
Syrma SGS technology Kaynes technology Avalon technologies Kaynes technology Avalon technologies Cyient DLM
8000 12000
Aerospace & Defence Revenue (Rs Mn)

Railways Segment Revenue (Rs Mn)
7000
10000
6000 3,099
8000
5000
4000 6000 8,656
3000
1,844 3,615 4000
2000 4,799
1,644
2000 2,763
1000 1,351
943 842
0 9 376 0
In healthcare, too, Cyient will gain significantly In consumables and communication, Syrma’s CAGR at c.27%
over FY23-26
Avalon technologies Cyient DLM Syrma SGS technology Kaynes technology
Avalon technologies
8000
Consumable & Comm. Rev (Rs in Mn)
18000
Healthcare Revenue (Rs Mn)
7000
16000 1,905
6000 2,067 14000 1,410
5000
12000
4000 1,163 10000
1,353
3000 865 8000 1,040
1,318 1,013
729 595 13,551
2000 6000
156 676
4000
1000 1,905 2,243 6,597
1,633 2000 1,388
271
0 1,621
0

Segmental breakup; every company has a diversified mix of industries that have strong potential ahead
Particulars - FY23 (Rs mn) Kaynes Syrma Avalon Cyient DLM
Order Book 26,482 30,000 12,310 24,325
Total Revenue 11,261 20,483 9,450 8,320
Order Book to Bill (x) 2.35 1.46 1.30 2.92
% of Export Revenue 15% 31% 59% 60%
Industrials - - Order Book 7,151 9,406 3,570 6,101
Revenue 3,041 6,422 2,741 2,087
% of FY23 revenue 27% 31% 29% 25%
Gross Margins % - PC Estimate 34% 30% 35% 28%
Revenue CGAR (FY19-23) 27% 20% 11% 36%
Revenue CGAR (FY23-25E) 87% 33% 23% 71%
Healthcare - - Order Book 1,590 2,392 1,600 3,955
Revenue 676 1,633 1,229 1,353
% of FY23 revenue 6% 8% 13% 16%
Gross Margins % - PC Estimate 29% 54% 35% 26%
Revenue CGAR (FY19-23) 44% -4% 8% 16%
Revenue CGAR (FY23-25E) 30% 17% 30% 23%
Consumables and Communication# - - Order Book 2,383 9,662 1,354
Revenue 1,013 6,597 1,040
% of FY23 revenue 9% 32% 11%
Gross Margins % - PC Estimate 30% 17% 35%
Revenue CGAR (FY19-23) 39% 42% -7%
Revenue CGAR (FY23-25E) 17% 47% 41%
Railways - Order Book 3,178 551 2,585
Revenue 1,351 376 1,844
% of FY23 revenue 12% 2% 20%
Gross Margins % - PC Estimate 41% 17% 39%
Revenue CGAR (FY19-23) 9% 248% 3%
Revenue CGAR (FY23-25E) 43% 111% 37%
Automobiles - - Order Book 10,062 5,901
Revenue 4,279 4,029
% of FY23 revenue 38% 20%
Gross Margins % - PC Estimate 24% 22%
Revenue CGAR (FY19-23) 56% 31%
Revenue CGAR (FY23-25E) 40% 46%
Defense - - Order Book 9,155
Revenue 3,132
% of FY23 revenue 38%
Gross Margins % - PC Estimate 21%
Revenue CGAR (FY19-23) 14%
Revenue CGAR (FY23-25E) 34%
Aerospace and Defense - - Order Book 529 *4,874
Revenue 225 140 1,667
% of FY23 revenue 2% 1.5% 20%
Revenue CGAR (FY19-23) 40% -13% 36%
Revenue CGAR (FY23-25E) 47% 37% 55%
IOT/IT - - Order Book 1,589 2,089
Revenue 676 1,426
% of FY23 revenue 6% 7%
Revenue CGAR (FY19-23) 19% 360%
Revenue CGAR (FY23-25E) 40% 25%
Clean Energy - - Order Book 3,078
Revenue 2,363
% of FY23 revenue 25%
Gross Margins % - PC Estimate 36%
Revenue CGAR (FY19-23) 32%
Revenue CGAR (FY23-25E) 37%
Source: Company data, PhillipCapital India Estimate. *does not include defense #Communication is only for Avalon

PCBA/PCB companies’ margins

Particulars *FY23 Syrma Tech Kaynes Tech Avalon Tech Cyient DLM
Revenue (Rs Mn) 20,484 11,261 9,447 8,320
Revenue Mix (% of Revenue)
Box Build 18% 30% 47% 32% Avalon has highest share of box build
PCBA/PCB 62% 62% 33% 63% due to which it enjoys higher gross
ODM 18% 3% 2% 0.2% margins than peers; however, due to its
Cable Harness NA NA 9% 1% high employee expenses, the benefit of
Others 2% 5% 9% 4% this margin does not translate to
Gross Margin (A) 25% 30% 36% 22% EBITDA levels
Employee Expenses 5.2% 6.8% 17.0% 7.8%
Consumption of Stores & Spares 0.8% 1.9% 0.6% 0.6%
Freight 1.4%* 1.4% 1.4% 0.7%
Contract Labor 3.3% 2.3% NA NA
Power & Fuel 0.6% 0.5% 0.7% 0.5%
Others 2.2% 2.2% 4.1% 1.6%
Total Expenses (B) 13.5% 15.2% 23.8% 11.1%
EBITDA Margin (A-B) 11.3% 15.0% 11.9% 11.3%
Source: Company Data, PhillipCapital India Research estimates. *incl. Job work
We expect margins to improve from here on due to shift towards low volume and
high mix and also due to companies focusing more on vertical integration.
EBITDA margin trend of listed players over FY19-23 EBITDA margin trend of unlisted players over FY19-23
Syrma Kaynes Avalon Cyient DLM SFO tech Genus Electrotech
20% Kaynes enjoys industry leading margins Shogini tech Ascent circuits
18% Epitome components
16%
15% 20%
14% 17.90%
11.9%
12% 15%
11.3% 13.20%
10%
10% 11%
8%
8.30%
6%
5% 7.50%
4%
2% 0%
0% FY18 FY19 FY20 FY21 FY22 FY23
FY19 FY20 FY21 FY22 FY23
Source: Company Data, PhillipCapital India Research Source: Company Data, PhillipCapital India Research estimates
Most listed companies’ PAT CAGR was c.60%+ PAT CAGR of unlisted companies at avg. c.15% over FY18-23
Rs Mn FY19 FY23 SFO tech Genus Electrotech
1400 Shogini tech Ascent circuits

1,231 More than 60% CAGR
1200 in PAT over FY20-23 Epitome components
1,027 Rs Mn
952 1000 287
1000
800 800 212
525 138 34
600 600 106
400 317 133
173 400 79
200 123 40
578
200
0 318
Syrma SGS Kaynes Avalon Cyient DLM 0
-200 -67
technology technology technologies FY18 FY23

Kaynes / Syrma improved their sales/gross block Unlisted space started seeing strong revenue visibility,
which will lead to more capex ahead
SFO tech Genus Electrotech Shogini tech
Ascent circuits Epitome components
6 5.6 5.5
9 8.5
4.8
5 4.4 8
3.9 7
4 3.6
3.2 6
3 2.4 5
3.6
4
2 2.7 2.6
3 2.1
1.4 1.6 1.4 1.6 1.7
1 2
1
0 0
FY20 FY23 FY19 FY23
ROCE trend of listed players Epitome leads the unlisted space in ROCE; avg ROCE
Syrma SGS technology Kaynes technology SFO tech Genus Electrotech
Avalon technologies Cyient DLM Shogini tech Ascent circuits
35%
25%
30%
20%
25%
15% 20%
10% 15%
10%
5%
5%
0% 0%
FY20 FY21 FY22 FY23 FY19 FY20 FY21 FY22 FY23
ROE of listed players ROE of unlisted players

Syrma SGS technology Kaynes technology SFO tech Genus Electrotech
Avalon technologies Cyient DLM Shogini tech Ascent circuits
65% 25%
20%
45%
15%
25%
10%
5%
5%
FY20 FY21 FY22 FY23
-15%
0%
-35% FY19 FY20 FY21 FY22 FY23

Working-capital trend: Avg. WC days of 108 in FY23 are much …203 days for unlisted players
lesser than…
SFO tech Genus Electrotech
Syrma SGS technology Kaynes technology Shogini tech Ascent circuits
Avalon technologies Cyient DLM Epitome components
160 350
140 139 138
140
118 300 230
120
99 250
100 221
80 200
Days
Days
80 66 186
150 177
60 49
40 100
20 50
0 0
Higher the relationship better the receivables. Kaynes has highest customer base amongst the peers due to
industry diversification, however Cyient has low customer
Receivables Days Avg yrs Relationship with customer- Top5
base due to presence in specialised industry.
80 76
71 70 No of Customers
68
70
400 350
60
350
50
300
40 250 200
30 200
20 150
10 10 89
7 7 100
10 35
50
0 0
Kaynes Syrma SGS Ltd Avalon Cyient DLM Kaynes Syrma SGS Ltd Avalon Cyient DLM
Technologies Ltd Technologies Ltd Technologies Technologies
Ltd Ltd
Source: Company Data, PhillipCapital India Research. *Avalon 8MFY23
Source: Company Data, PhillipCapital India Research. *Avalon 8MFY23
Customer Concentration- Top 5; Cyient has high customer Top 5 Supplier concentration
concentration due to high share of A&D
Supplier Concentration - Top5
Customer Concentration - Top 5
35%
31.5% 30.8%
80%
67.5% 30%
70%
60% 25% 22.8%
50% 44.0%
% of RM
20%
35.0% 37.0%
40%
15%
30%
20% 10%
10%
5%
0%
Kaynes Syrma SGS Ltd Avalon Cyient DLM 0%
Technologies Technologies Kaynes Avalon Cyient DLM
Ltd Ltd Technologies Ltd Technologies Ltd

Syrma has robust supplier network Syrma still gets benefit of higher payable days due to robust
supplier network.
1800 1669 No of Supplier Payables Days

1600 160
138
1400 140
1200 120
94
1000 871 100
776 80 71
800 57
60
600
40
400 20
200 0
0 Kaynes Syrma SGS Ltd Avalon Cyient DLM
Kaynes Technologies Syrma SGS Ltd Cyient DLM Technologies Technologies
Ltd Ltd Ltd
Listed players have significantly reduced their debt levels… …and most unlisted players have also improved here
Syrma SGS technology Kaynes technology SFO tech Genus Electrotech Shogini tech Ascent circuits
4
3.4
12 3.5
10.2
10 3
Debt/Equity (x)
2.5
Debt/Equity (x)
8 2.1
5.3 2
6
1.5
4 1.0
1 0.7
1.4 1.6 0.5 0.5
2 0.4
0.6 0.5 0.3
0.2 0.2 0.1
0 0
FY20 FY23 FY19 FY23
Source: Company Data, PhillipCapital India Research Source: Company Data, PhillipCapital India Research estimates.
How are we looking at income statement of companies under our coverage…

Revenue (Rs Mn) Revenue EBITDA (Rs Mn) EBITDA OPM (%) PAT (Rs Mn) PAT
CAGR CAGR CAGR
FY23 FY24 FY25 FY23 FY24 FY25 FY23 FY24 FY25 FY23 FY24 FY25
Syrma SGS Technology Ltd 20,484 29,316 40,240 40% 1,878 2,655 3,823 43% 9.2% 9.1% 9.5% 1,231 1,856 2,737 49%
Kaynes Technologies Ltd 11,261 17,970 26,213 53% 1,683 2,629 3,791 50% 14.9% 14.6% 14.5% 952 1,792 2,766 70%
Avalon Technologies Ltd 9,447 12,252 16,477 32% 1,128 1,570 2,148 38% 11.9% 12.8% 13.0% 525 960 1,440 66%
Cyient DLM Ltd 8,320 11,702 17,880 47% 878 1,260 2,102 55% 10.5% 10.8% 11.8% 317 655 1,336 105%
Source: Company Data PhillipCapital India Research estimates

How are we looking at balance sheet of companies under our coverage…

Net Debt (Rs Mn) CFO (Rs Mn) ROCE (%) ROE (%) Asset T/o
Companies
FY23 FY24 FY25 FY23 FY24 FY25 FY23 FY24 FY25 FY23 FY24 FY25 FY23 FY24 FY25
Syrma SGS Technology Ltd 2,924 3,853 3,268 (703) 1,035 1,033 10.5 12.7 16.4 8.0 10.7 13.7 1.1 1.3 1.7
Kaynes Technologies Ltd (3,501) (2,447) (2,655) (419) 1,381 1,126 14.6 20.6 25.2 9.9 15.7 19.5 1.0 1.5 1.8
Avalon Technologies Ltd (1,156) (533) (743) (133) 435 545 12.7 21.1 25.6 9.8 17.4 20.7 1.1 1.7 2.1
Cyient DLM Ltd 2,371 (3,519) (3,270) 521 266 431 14.6 10.8 18.0 16.0 7.7 13.5 1.6 1.2 1.7
Valuation Ratios
P/E PEG EV/EBITDA
Companies Market Cap (Rs Mn)
Syrma SGS Technology Ltd 79,550 65 43 29 1.1 0.8 0.6 43.9 31.4 21.6
Kaynes Technologies Ltd 103,144 111 59 38 1.3 0.7 0.7 59.2 38.4 26.8
Avalon Technologies Ltd 40,337 72 39 26 -3.5 0.5 0.5 33.0 24.0 17.0
Cyient DLM Ltd 37,678 84 58 28 -0.9 1.3 0.3 31.9 26.1 15.7
1Year forward PE chart; Between 1999-2001; Infosys and Wipro were trading at
+180x PE.
300 Before; going on to the valuation of
Infosys- PE (x)
EMS industry players under coverage;
Wipro - PE (x) we should first go back and understand
250
the Information Technology (IT) boom
Avg PE
from 1998 onwards (Refer case study on
200 page 31). At the time of an IT -industry
boom the companies experienced
PE (X)
150 significant re-rating in their stock prices

due to higher earning visibility and they
started trading at an Average 2 year
100
forward PE of c.100x between 1999-
2002.
50
0
April-98 April-99 April-00 April-01
Source: Ace Equity, PhillipCapital India Research
We expect the history to repeat in EMS industry as well and the companies to see
significant re-rating because of the strong industrial tailwinds.
PAT CAGR and Trading PE on FY25 PEG & Trading PE at FY25: Currently companies are trading
140% below 1
50
120%
45
Cyient DLM
PAT GAGR FY(23-25)
100%
40
Kaynes
80% 35
PE FY25
Avalon Kaynes
60% 30
Cyient DLM Avalon Syrma SGS
25
40% Syrma SGS
20
20%
15
0% 10
0 10 20 30 40 50 0.0 0.2 0.4 0.6 0.8
FY25 PE(x) PEG FY25
Source: PhillipCapital India Research estimates Source: PhillipCapital India Research estimates

We give reasonable multiple; however, this companies will see strong re-rating going
ahead on back of “Make in India” to “Make for the World”
CMP EPS Target Target
58 Companies Upside
(Rs) FY25 PE Price
55
52 Kaynes 1,816 48 50 2,378 31%
Kaynes
PE Multiple
49
46
Syrma SGS 475 15 40 619 30%
43
Syrma SGS
40
37 Avalon Avalon 653 25 37 920 40%
34 Cyient DLM
31 Cyient DLM 505 18 35 622 23%
28
25
0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8
PEG FY25
Consensus vs PC estimates; we expect strong earning upgrade on back of increasing backward integration, China+1 and
Atmanirbhar Bharat.
PC Consensus Difference
Companies Particulars
FY24 FY25 FY24 FY25 FY24 FY25
Revenue 29,316 40,240 27,539 35,971 6% 12%
Syrma SGS Technology EBITDA 2,655 3,823 2,633 3,566 1% 7%
PAT 1,856 2,737 1,764 2,334 5% 17%
Revenue 17,970 26,213 16,309 21,683 10% 21%

Kaynes Technology Ltd EBITDA 2,629 3,791 2,471 3,351 6% 13%
PAT 1,792 2,766 1,603 2,138 12% 29%
Revenue 12,252 16,477 11,760 14,423 4% 14%

Avalon Technology Ltd EBITDA 1,570 2,148 1,387 1,700 13% 26%
PAT 960 1,440 932 1,207 3% 19%
Revenue 11,702 17,880 - - NA NA

Cyient DLM Ltd EBITDA 1,260 2,102 - - NA NA
PAT 655 1,336 - - NA NA
Source: Company Data, PhillipCapital India Research estimates
Break up of IPO Proceeds for companies under our coverage
Total Fresh Offer for Sale OFS - Capex for Capacity Repayment Working For Inorganic General
Rs Mn Listing Date
IPO Size Issue by Promoter other Expansion of Debt Capital Growth Corporate Purpose
Syrma SGS Technologies Ltd 26/11/2022 8,401 7,660 741 NA 4,800 NA 1,316 NA 1,544
Kaynes Technologies Ltd 22/11/2022 8,578 5300 1,224 2,055 2,482 1,300 1,147 NA 371
Avalon Technologies Ltd 18/04/2023 8,650 3200 5,450 NA NA 1,450 900 NA 850
Cyient DLM 10/7/2023 5920 5920 NA NA 436 1,609 2,911 700 264

Key Risks
➢ Export Vulnerability: Companies with a high export share are exposed to risks
arising from global inflation, economic slowdown, and geopolitical uncertainties.
➢ Raw Material Sourcing Risks: The industry's heavy reliance on imports for over 50%
of its raw materials leaves it vulnerable to geopolitical crises, potentially affecting
sourcing capabilities and profitability.
➢ Customer Concentration Risk: Companies relying on a small customer base are

susceptible to adverse impacts if these customers switch to competitors.
➢ Freight Rate Sensitivity: The significant portion of revenue generated from exports
makes companies highly sensitive to fluctuations in freight rates, which can
significantly impact profit margins.
➢ Competition Challenge: Intensified competition due to a large industry size poses

a threat to companies with lower market share, potentially affecting their business
viability.
➢ Industry-specific Slowdown: The business may encounter challenges if the

industries it serves experience slowdowns, which could have a cascading effect on
companies operating within those segments, ultimately influencing the business's
overall performance and growth prospects.

NEW TITANS OF CIRCUITRY

COMPANIES SECTION

Kaynes Technology India Ltd (KAYNES IN)

Riding on Atmanirbhar Bharat with strong profitability.
19 July 2023
INDIA | ELECTRICALS | Initiating Coverage
Kaynes is an integrated Electronics System Design and Manufacturing (ESDM) company,
with comprehensive capabilities that are IoT (internet of things) enabled. Kaynes helps
BUY
CMP RS 1,815
other companies design, manufacture, and test their electronic products; it provides
TARGET RS 2,378 (+31%)
conceptual design, process engineering, integrated manufacturing, and life-cycle support
for the automotive, industrial, aerospace and defence, medical, railways, IoT, IT, and other SEBI CATEGORY: SMALL CAP
segments. It operates through eight strategically located facilities across India. It has a
COMPANY DATA
strategic high-margin low-volume (high-mix) model. It has long-standing relationships with
O/S SHARES (MN) : 58
customers and is led by highly experienced promoters. In FY23, its revenue/EBITDA/PAT MARKET CAP (RSBN) : 106
was Rs 11.3/1.7/0.95bn with OPM at 14.9% and RoE/RoCE of 9.9%/14.6% and has an order MARKET CAP (USDBN) : 1.3
52 - WK HI/LO (RS) : 1,872 / 625
book of Rs 26.4bn executable over the next 12-18 months.
LIQUIDITY 3M (USDMN) : NA5
PAR VALUE (RS) : 10
Why do we like Kaynes?
• Diversified end-user industries with greater focus on the high-margin segment: Kaynes SHARE HOLDING PATTERN, %
Jun 23 Mar 23 Dec 22
has increased its product offerings across industries due to which its target market size PROMOTERS : 63.6 63.6 63.6
has increased to Rs 646.1bn in FY23. It enjoys industry leading margins because of its DII : 13.1 13.0 11.4
large presence across high-margin industry segments. FII : 8.0 8.2 8.5
• Kaynes has a strong customer base: Kaynes has gained expertise in complex sub- OTHERS : 15.3 15.3 16.5
assemblies, which has resulted in strong customer relationships, customer stickiness, and PRICE PERFORMANCE, %
a competitive edge. Its average relationship with top-10 customers is 7+ years and with 1MTH 3MTH 1YR
not more than 15% revenue from a single customer, its core focus stays on customer de- ABS 16.5 92.5 NA
risking and value addition. Over the next 2-3 years, we expect Kaynes to on-board key REL TO BSE 10.3 79.9 NA
leading brands in the high-margin segment.
PRICE VS SENSEX
• Domestic focus; exports opportunity is yet to be captured: Kaynes derives c.85% of its
revenue from the domestic market while for other players c.50% comes from exports. 400
With Kaynes strong domestic presence coupled with the government’s “Atmanirbhar
300
Bharat” theme, the company will benefit more than the industry. Additionally, we expect
Kaynes to explore exports opportunities ahead, which will also add to its growth. 200
• Capex due to strong order-book visibility: Kaynes’ order book saw a meteoric 96% CAGR
100
over FY20-23; its current order book is at c.Rs 26.4bn, 2.4x its FY23 revenue, from Rs
3.5bn three years ago, providing strong revenue visibility. Kaynes will almost double its 0
Nov-22 Feb-23 May-23
current SMT lines to 20+ over the next two years, also it will do capex for value addition
KAYNES IN BSE Sensex
and backward integration (bare PCB board and OSAT based on this strong order visibility.
• High focus on value added mix will benefit margins: c.30% of Kaynes’ revenue comes KEY FINANCIALS
from higher-margin box-builds; it is also increasing its ODM share, which will also add to Rs mn FY23 FY24E FY25E
growth in margins. Net Sales 11,261 17,970 26,213
• M&A – for inorganic growth: Strategic acquisitions will continue, which will complement EBITDA 1,683 2,629 3,791
its scale of operations, segments, and help expand into newer geographies. Net Profit 952 1,792 2,766
EPS, Rs 16.4 30.8 47.6
Outlook and valuation: We expect Kaynes to see a strong growth mainly due to: (1) PER, x 110.9 58.9 38.2
Favourable industry tailwinds, (2) development of component/chips ecosystem in India EV/EBITDA, x 60.6 39.2 27.1
leading to improving supply chains, in turn benefiting Indian EMS companies in terms of PBV, x 11.0 9.3 7.5
margins and working capital improvement, (3) strong product mix and focus on adding high- ROE, % 9.9 15.7 19.5
margin segment, (4) on-boarding new value-added customers, (5) capacity expansion on
strong order book visibility, backward integration (bare PCB and OSAT), and (6) increasing its Deepak Agarwal, Research Analyst
presence in the domestic market and looking for exports opportunities. With all these dagarwal@phillipcapital.in
positives, we expect the company’s revenue/EBITDA/PAT CAGR of c.53%/50%/70% over
FY23-25 with OPM of 14.6%/14.5% in FY24/FY25 and earnings growth of c.82%/54% in Bhavanishankar Kumawat, Research Associate
FY24/25. We value the company at 50x FY25 EPS based on strong financials, improved
ROCE/ROE of c.26%/20% in FY25, and better working capital improvement visibility. At CMP, Nikhil Kandoi, Research Associate
the stock trades at a PE of 37x on FY25 EPS. We initiate coverage with a Buy rating and target nkandoi@phillipcapital.in
of Rs 2,378.

KAYNES TECHNOLOGY INDIA LTD INITIATING COVERAGE
Diversified end-user industries base

Its varied client base provides access to a larger market, protects it from industry-
specific downturns; in addition, it has a sharp focus on the high-margin segments
Kaynes caters to various industries, which limits its exposure to a downturn in any one
industry vertical. Most of the industries it caters to are on a high-growth trajectory, led
by supply-chain diversification by global giants, increased government spending, and
pick up in private CAPEX. We expect strong growth for EMS players due to increasing
electronics content in these industries.
Diversified product portfolio across key industry verticals GP Margins in FY23 – PhillipCapital Estimate
24% 34% 26% 29% 41% 34%
Industries that Kaynes operates in are expected to see high CAGR growth (FY23-27)
CAGR FY23-27
45% 41%
40% 38%
35% With Kaynes targeting larger

30%
30% diversified markets, its target EMS
25% 22% industry size would be Rs 2098bn+ in
21%
FY27 from current c.646bn in FY23
20%
15%
10%
5%
0%
Automotive Industrial Telecom Medical A&D
Source: Kaynes Technology Data, PhillipCapital India Research

Industry diversity mitigates disruptions, strengthens margins and revenue visibility

Presence across various end-user industries allows the company to tweak its
manufacturing in case of disruption in any one industry and also allows it to take
strategic calls to cater to industries that provide high margins. Kaynes is also entering
in to new emerging industries such as electric vehicles, in which electronics usage is
much higher than other types of vehicles. These types of moves will ensure strong
revenue visibility for the company ahead.
How the revenue mix is expected to shape up in the coming years

120%
100% 6% 5%
7% 8% 9% 8% 9%
6% 5% 5% 5% We expect strong growth backed by
9% 11% 6% 11%
80% 10% 11% significant growth in the industrials
14% 12% 4%
17% 5% segment and significant growth from
26% 10% 6% 2% 2%
11% 3% 2% EVs over the next 2 years
60% 6% 3%
4% 5% 37% 41%
2% 30% 27%
40% 33%
32% 32%
20% 34% 38% 34% 32%

20% 20% 24%
0%
FY19 FY20 FY21 FY22 FY23 FY24 FY25
Automotive Industrial Aerospace & Defense Medical Railways IoT Consumer
Strong revenue CAGR anticipated in industrials, railways, automotive, A&D, and IT

Segments CAGR FY20-23 CAGR FY23-25E
Automotive 79% 40%
Industrial 37% 87% Over FY20-23, major growth was driven
Railways 29% 43%
by automotive, industrials and railways.
These segments will continue to drive
Medical 43% 30%
revenue growth in coming years along
Aerospace & Defence 4% 47% with Aerospace and defence.
IT 19% 40%
Consumer 51% 17%
Source: PC estimates, PhillipCapital India Research, Company Data
Sector as a % of revenues and its growth

(Rs mn) FY20 FY21 FY22 FY23 FY24 FY25
Automotive 747 1004 2370 4279 6033 8447
as a % of overall revenues 20% 24% 34% 38% 34% 32%
Industrial 1178 1394 2105 3041 6690 10637
Aerospace & Defence 200 136 178 225 338 489
Medical 230 462 712 676 879 1,142
as a % of overall revenues 6% 11% 10% 6% 5% 4.4%
Railways 631 596 731 1351 1986 2781
IoT 403 247 375 676 878 1318
Consumer 293 368 591 1014 1166 1399
Total 3682 4206 7062 11261 17970 26213
Source: PC estimates, Company data, PhillipCapital India Research

Why do we prefer Kaynes over other players?

• Kaynes will continue to focus on a customised mix of products that give it high Kaynes has gained expertise in
margins (high-mix), high-technology, flexible volume production. It will provide complex sub-assemblies, which has
value-add services to customers across aerospace, defence and outer-space, resulted in strong customer
railways, medical, IT, industrial and automotive electronics verticals. relationships and a competitive edge
• It has proven competencies in prototyping and sourcing, including supplier
development for bare PCBs (Printed Circuit Boards), building test jigs, and For e.g., in 4-wheeler EVs, Kaynes
supplies 10% of BoM to a leading
designing processes for PCBAs (PCB assemblies).
brand for one of their highest selling
• Given the complex nature of its offerings and the high technology involved, Kaynes cars
has spent a lot of time developing the prototypes and getting approvals for such
complex sub-assemblies with its customers. PCBAs constitute just 10-20% of the
BoM across industry verticals on average, so they are usually outsourced. And Research and Development Cost
since the time spent by customers in helping Kaynes develop an expertise in these 20 16.26
assemblies and solutions is long, customer stickiness is likely to be very high.
• Kaynes will continue to invest in widening its product basket across product 15 11.76 12.08
in Rs. mn
segments and will focus on backward integration, OSAT.
10
• All of this will help in scaling up the business with existing clients as well as
(0.32% (0.29%) (0.23%)
venturing into high-margin and more complex new products within industries, 5
which will aid margins expansion. Kaynes has a dedicated R&D facility at its Mysuru
unit with a sharp focus on product development. 0
FY20 FY21 FY22
Application-specific product roadmap: () - represents % of revenue

• Aerospace and defence: Avionics, communication LRUs (Line Replaceable Units)
• Medical devices: Diagnostic lab, surgical equipment and other equipment
• Space: Components of space vehicles and sub-systems Kaynes has the second-best R&D
• IT/IoT: High density boards, streetlight controllers, interior lamps, fan spend amongst its peers
• Industrial: High-capacity UPS (Uninterruptible Power Supply)
• Consumer: Household consumer electronic devices
• TFT (thin-film transistor) displays: Car navigation and entertainment systems
• Green energy: Solar string inverters, LED lights
• BLDC (brushless DC) controllers: DC motors across segment
Global accreditations and A&D expertise drive growth prospects

Kaynes’ operations comply with global standards and it has 10 global accreditations
making it the most certified ESDM company in India. It is certified for critical
electronics repair and maintenance of commercial, private and military aircrafts.
Since A&D is a high-barrier segment, this certification will hugely benefit Kaynes, as
this industry will grow strongly, take the company’s order book along.
Kaynes’ vertical-specific certifications

Industry vertical Certification
Aerospace and defence EN/AS 9100
Kaynes is the most certified ESDM
Railways IRIS (ISO/TS 22613) - Railway signalling company in India
Automotive IATF 16949
Kaynes is amongst the only few Indian
Medical ISO: 13485 ESDM companies to have NADCAP
Aerospace and defence NADCAP certification
Aerospace and defence EN 9110/ AS 9110 – Avionics repair


Diversified client base protects it from adversity

Kaynes has 350+ customers across 26 countries. There is a balanced mix of fortune 500
companies, MNCs/leading domestic brands and start-ups, which shows great Long-standing relationships + diversified
diversification of its customer base. It will continue to grow this base, easing its and growing customer base = Strong
dependence on any one industry vertical or on a few customers, which will safeguard growth visibility
its business operations from adverse effect of a customer- or industry-specific
downturn or disruption. Kaynes is one of the few EMS companies with such a large
customer base and such low customer concentration.
Kaynes continues to see steady growth in its customer base Kaynes has the highest number of customers amongst the
460
Peers
430
400 No of Customer
370 346 350
340 306 400 350
number of customers
310 283 292

350
280 300
250
220 250 200
190 200
160 150
130 89
100 100
35
70 50
40 0
10 Kaynes Syrma SGS Avalon Cyient
-20
FY19 FY20 FY21 FY22 FY23 Technology
Client mix includes established brands and high-growth new-age companies

Kaynes’ customer mix includes major leading brands and the new-age high-growth
companies. In the three decades of its existence, Kaynes has formed long-standing Over the next 2-3 years, we
relationships with many well-known customers across industries. Some of its expect Kaynes to on-board 3-4
customers are Agappe Diagnostics, Canyon Aero, Frauscher Sensor Technology India leading EV companies
Private Limited, Hitachi Rail STS India Private Limited, India Japan Lighting Private
Limited, Siemens Rail Automation Private Limited, Iskraemeco India Private Limited
and Tonbo Imaging India Private Limited.
Kaynes Key Customers
Build to print / HLA Sub assembly / Box build ODM

Revenue Contribution
63% 28% 4%
(FY22)
Key customers
(relationship of 5+yrs)
Key customers
(relationship of 3-5yrs)
Key customers
(relationship of <3yrs)
Auto lamps, room thermostat Bluetooth based lighting

Signaling system, switchgear
Illustrative applications Semi - auto analyzers for blood solutions convertor for naval submarine,
& metering, etc.
chemicals & process, etc Robotic & dispensing solutions etc

Revenue concentration of customers is not too high

None of Kaynes’ customers contribute more than 15% of its overall revenues, so its
sales will not be majorly adversely affected if its business from one customer stops.
The top-10/top-5 customers of the company accounted for c.60%/44% of FY23
revenues. We expect customer concentration to further reduce in the future.
Kaynes has low customer concentration due to customer Kaynes has long-standing relationships with its customers,
diversification. with an overall average relationship of 7 years
70% 10 8.8 8.8
Avg business period relationship of top

60% 7.4
60% 8 7.0
6.3
6 5.2
50% 44%
3.7
10 customers
40% 4
2
30%
0
20% 14%
10%
0%
Top 1 Top 5 Top 10
Key Customers of Kaynes have grown their revenue significantly

Revenue (in Rs mn) FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22
India Japan Lighting 2,422 3,386 4,352 6,048 8,449 8,988 8,159 6,298 5,781 8,718
Growth (YoY) 40% 29% 39% 40% 6% -9% -23% -8% 51%
L&T 751,953 858,890 927,617 1,019,753 1,100,110 1,198,621 1,352,203 1,454,524 1,359,790 1,565,212
Growth (YoY) 14% 8% 10% 8% 9% 13% 8% -7% 15%
Siemens 106,783 105,631 108,366 110,647 127,953 137,672 99,465 131,985 161,378
Growth (YoY) -1% 3% 2% 16% 8% -28% 33% 22%
Tata Communications 44,161 43,764 43,193 47,903 50,682 51,209 53,891 57,503 62,253 65,874
Growth (YoY) -1% -1% 11% 6% 1% 5% 7% 8% 6%
Honeywell Automation 24,414 22,215 24,447 26,981 31,747 32,900 30,428 29,483
Growth (YoY) -9% 10% 10% 18% 4% -8% -3%
boat 99 273 1,064 2,394 7,004 13,138 28,729
Growth (YoY) 176% 289% 125% 193% 88% 119%
KONE 12,086 11,565 14,165 16,309 18,206 17,735 19,950 19,496 16,757 21,751
Growth (YoY) -4% 22% 15% 12% -3% 12% -2% -14% 30%
Schneider Electric 14,178 13,309 14,333 15,529 13,770 13,337 13,903 13,844 12,971 15,303
Growth (YoY) -6% 8% 8% -11% -3% 4% 0% -6% 18%
Agappe 627 765 906 960 1238 1516 1878 2042 2730 4374
Growth (YoY) 22% 18% 6% 29% 22% 24% 9% 34% 60%
Hitachi 1656 2193 2631 2941 2087 2563 2663 3037 2508 2759
Growth (YoY) 32% 20% 12% -29% 23% 4% 14% -17% 10%
Kaynes has strong domestic customer base and developing export base well
Segment Domestic International
Automotive 67 5
Industrial 161 24
Aerospace & Defence 19 2
Medical 23 5
Railways 8 4
IoT 16 7
Consumer 6 1
Total 300 48

Kayne’s exposure to exports is lower than the other listed players.

Kaynes derives maximum revenues from India Kaynes has lowest share of Exports amongst the Peers
South East Asia, Share of Exports (in Total Revenue)
Others, 2%
1%
80% 75%
Europe, 9%
70% 59% 60%
North
60%
America, 3%
50%
40% 31%
30% 20%
20%
India, 85%
10%
0%
Syrma Kaynes Avalon Cyient DLM Centum
Technology Electronics
Kaynes will thrive in India's increasing domestic focus, emerging industries growth
India is a priority market for Kaynes, which is not surprising, considering significant
traction in industries such as railways, EVs, industrials, and automotive (which
incidentally contribute the maximum to its revenues) led by increasing government
efforts towards more localisation as well as higher infrastructure spending and pick up
in private capex. These sunrise industries are undergoing major changes in terms of
technology and up-gradation. We believe that adoption of newer technologies and
increasing electronics usage in products will increase demand for EMS players such as It started exporting sensor electric
Kaynes. India is on its way towards becoming a developed economy, and the share of assemblies to Phoenix, Arizona, in FY21
manufacturing in overall GDP should see a significant increase – basically, just like what and saw strong growth momentum in
happened to the information technology industry two decades ago. Kaynes is in a aerospace, defence, and power
sweet spot to capitalise on this opportunity. electronics
Order book growing exponentially, with rise in order value, proving capabilities
Kaynes saw a sharp jump in the order book to Rs 26.5bn in FY23 from Rs 3.5bn in FY21
with an increase in average order value, which proves its execution capabilities. With new Kaynes has seen significant order book
customers coming on-board, and rising wallet share with existing customers, Kaynes will growth, driven by execution
continue to see strong order-book build up in coming years, which will provide revenue capabilities, new customer acquisition,
and expansion in domestic markets. PLI
visibility. Kaynes will benefit the most from the following: (1) its high domestic presence
approval and industry uptick will drive
(almost 85% of its revenues comes from the domestic markets), (2) capacity expansion growth
across industries in India, and (3) uptick in industries such as automotive, industrial,
railways, aerospace, and defence. It has received approval under the Production Linked
Incentive (PLI) for white goods and PLI for telecom products.
Order book has seen a sharp jump over the years; we expect Average order value has increased almost 5x in the last 3
order inflow CAGR of 40% over the next few years years
30 Average order value (Rs Mn)
26.5
25 CAGR of 96% 8 7.2
7
20 5.5
6
15.2
in Rs bn
5
15
4
10 3
6.7
2 1.5
5 3.5
1
0 0

Segment-wise analysis
1. Automotive, 38% of revenue: Riding on lighting and controllers
The automotive segment is seeing strong growth in India, and the EMS opportunity for In auto – India Japan Lighting (IJL)
this segment should see 23% CAGR over the next 2 years. The segment is seeing higher is a major client; Revenue size of IJL
demand for value-added products. Kaynes is gaining wallet share in this segment and has grown at a CAGR of c.15% over
on-boarding new customers. It has established itself as a major supplier to OEMs for FY13-22. IJL revenue in FY22 was Rs
electronics in automotive lighting, passive entry passive start, Electronic Control Units 8.7bn
(ECUs), door switches, clusters, sensors, convertors, etc. We expect Kaynes to see 40%
CAGR in automotive over the next three years with strong order book at Rs
13.2bn/16.3bn in FY24 and FY25, and better margins due to increase in share of box
builds.
Automotive segment CAGR of c. 40% over FY23-25 We see auto order book CAGR of 28% over the next 2 years
Automotive Growth (YoY) Order book
9000 8447 160% 18000 16397

CAGR of 40% CAGR
8000 140% 16000 of 28%
13280
7000 6033 120% 14000
6000 12000 CAGR of 10062
100%
in Rs mn
in Rs mn
5000 4279 10000 95%

80%
4000 CAGR of 56% 8000
2370 60% 5090
3000 6000
2000 40% 4000
718 747 1004 1600
1000 20% 2000 690 715
0 0% 0
FY19 FY20 FY21 FY22 FY23 FY24E FY25E FY19 FY20 FY21 FY22 FY23 FY24E FY25E
Source: PhillipCapital India Research estimates, Company Data Source: PhillipCapital India Research estimates, Company Data
Kaynes automotive segment gross margin trend We expect share of box builds to increase in FY24/25
Gross margin PCBA Box builds
40% 9000
33.6%
35% 8000 1267
30% 26.7% 7000
25.7%
23.9% 23.5% 23.0% 6000
25% 22.4% 603
in Rs mn
5000
20%
4000
15% 7180
3000
5430
10% 2000 4279
5% 1000 2370
718 747 1004
0% 0
ECUs: A few key takeaways

• Electronic Control Units (ECUs) have had a major contribution in overall
automotive electronics and the growing concern among end-users about vehicle
performance and fuel consumption have driven the usage of ECUs.
• Due to regulatory compliance, even entry-level vehicles are now equipped with
ECUs. India has a strong base in ECUs in the automotive industry and in component
supply.
• In India, electrification of cars will rise rapidly and will reach last-mile connectivity
modes by 2030.

• Research company, Frost & Sullivan, expects more electrification in commercial

vehicle fleets due to a combination of lower ownership costs and regulatory
intervention.
In the automotive electronics industry, demand (95%) is driven by mainly these five
products – Engine Control Unit, Electric Vehicle/Hybrid Vehicle (EV/HV) components,
heating, ventilation, and air conditioning (HVAC) systems, infotainment systems, and
lighting solutions.
2. Industrial, 27% of revenue: Strong EV growth, big smart-meter

opportunity
• EVs: Kaynes expects significant growth in industrials, driven by electric vehicles.
Kaynes has started manufacturing for leading 4-wheeler brands and contributed
c.10% of BOM of that company’s product. The company recently completed
production audits with a large European customer to whom it will start exporting
EV chargers. In addition, Kaynes wants expand its customer base in LV power
switchgear and in large-volume ODM electronics, where revenue will grow based
on rising electronics content in the automotive segment, along with high focus on
EV adoption across the country will accelerate growth of ESDM (electronics system
design and manufacturing).
• Smart meters: It intends to use its relationships with customers in power
electronics and instrumentation to gain higher wallet share in smart meters.
• We expect strong revenue CAGR of 87% over the next two years from this segment
and revenues of Rs 6.6/10.6bn with order inflow of Rs 8.9/10.2bn in FY24/25.
Industrials’ revenue CAGR of 87% in 2 yrs. with significant Order inflow to see strong going ahead – 20% 2-year CAGR.
increase in share of EVs. Growth majorly from EVs and smart energy meters
Industrial Growth (YoY) Order book
12000 140% 12000
10637 10244
10000 120% 10000 CAGR (FY23-25E): 20% 8969
CAGR (FY23-25E): 87%
100% 8000
8000 7151
6690
in Rs mn
in Rs mn
80%
6000 6000
60% 4520
4000 3041 4000

40% 2222
2105
2000 1160 1178 1394 20% 2000 1115 1127
0 0% 0
Growth drivers for industrial electronics: We see 9% growth till FY25

• Industrial electronics will grow at around 9% till FY25, in which industrial ESDM will
grow at 22% to reach Rs 120bn by FY26. Industrial growth will be largely
• Key demand drivers: (1) Government of India initiatives to promote a healthy supported by the growth in EV. EV
environment for growth of the industrials sector in the country in the form of industry is expected to grow at an
approving PLI schemes and improving the electronics supply chain and assembly exponential rate.
industry, (2) strong consumer economy with increasing demand for consumer and
industrial electronics, which has driven the Indian EMS sector into the forefront.
• We see huge potential for smart meters in electricity/water/gas.
• Home-grown companies will be preferred over Chinese players.
• Key products for Kaynes – HVAC thermostats, smart meters, street-light
controllers, precision bridge and strains, and EV components chargers.

On conservative estimates we expect lower margins; Increasing share of box builds in overall revenues; we expect
however, with increasing share of box build and EV we expect box build revenue to contribute 40% of industrial by FY25.
margins to improve.
PCBA Box builds
Gross margin
12000
38%
37% 10000
36.9%
36% 4255
8000
35% 34.8% 34.9%
in Rs mn
34% 34.0% 33.9% 6000
2342
33% 32.9%
4000
32% 32.0%
6382
31% 760
2000 4349
30% 2105 2281
1178 1394
29% 0
FY19 FY20 FY21 FY22 FY23 FY24E FY25E FY20 FY21 FY22 FY23 FY24E FY25E
3. Railway, 12% of revenue; strong railway capex: Kaynes tapping ‘signalling’

for higher margins
The Indian market in signalling innovations is presently controlled by global OEMs such
as Siemens, Thales, Hitachi, Alstom and Bombardier. Kaynes intends to tap into
installation and maintenance of electronics equipment, branch out to traction Kaynes plans to strengthen share in
electronics, on-board electronics, rolling stock lighting and information systems. It will signalling by offering installation,
also look to strengthen market share in signalling, and explore potential strategic maintenance, and new-gen
acquisitions, thus bringing new-gen technologies into India in passenger safety, technologies. It aims to increase its
passenger comfort and internet connectivity. The entire business is mostly box-builds order book and revenue in this segment
for this segment, which provides higher margins. A higher budgetary outlay and
increased traction in the railways space will help the company increase its order book
to Rs 10.2bn by FY25; we expect 2-year revenues CAGR of 43% in this segment.
Railways will see revenue CAGR of c.43% over FY23-25 Order inflow of Rs 3.3/3.7bn over next 2 years, leading to
strong revenue visibility. Present order book-to-bill at 0.4x
Railways
3000 2781 10175

CAGR (FY23-
2500 25E): 43%
1986
2000 6432
in Rs mn
1500 1351
943 Order book
3178
1000 731
631 596
1570
500 906 603 950
0
Kaynes key achievements in signalling

→ Kaynes is currently a leading electronics manufacturer of signalling systems for
both Indian Railways and metro railways.
→ Besides being a manufacturer of Passenger Information Systems for a Canadian-
based OEM, Kaynes is also an authorized vendor for repairs for Delhi Metro Rail
Corporation.
→ Kaynes has created a ‘metro door opening and shutting light module’, which is
marketed to OEMs, using its ODM capabilities.

→ It is approved by Chittaranjan Locomotive Design centre for restoration of three-

phase locomotive electronics.
→ Some of the other key organizations supporting Indian railways include RVNL,
RailTel, DFCC and Concor. RVNL is helping in building engineering works required
by the Indian Railways and RailTel is helping modernizing the train control
operation and safety system of the railways.
→ Increase private sector participation, rising demand for urban mass transportation
and improved safety and modernization are key demand drivers for railways.
Potential growth drivers for railways EDSM segment

➢ The railways ESDM segment CAGR over FY21-26 should be 46% – from Rs 5bn in
FY21 to Rs 35bn in FY26.
➢ Indian railways plan to invest Rs 500bn to enhance the metro network across
major cities.
➢ It is developing and creating technology in areas such as signalling and
telecommunication, to be tailored with ‘KAVACH’, the locally developed Train
Collision Avoidance System.
➢ The key signalling and telecom upgrades on Indian Railways by 2026 will include:
(1) Train collision avoidance system for a target of 37,000 km.
(2) Automatic block signalling for a total route of 15,500 km.
(3) Electronic interlocking across 1,551 stations.
(4) 4G/LTE-based wireless communications for the entire railway network.
(5) Centralized traffic control for 11,000 km.
Gross margin trend for Kaynes’ railway segment

Gross margin (%)
43%
42% 41.9%
41%
40.6%
40%
39.2% 39.3%
39% 39.0%
38.5% 38.5%
38%
37%
36%
FY19 FY20 FY21 FY22 FY23 FY24E FY25E
4. Consumer, 9% of revenue: Greater focus on higher-margin segments

• Personal-electric devices: Kaynes will solidify its position in personal-electric
devices such as consumer radios, wearables, lighting components and controls,
and components for consumer appliances.
• Leveraging ODM capabilities: It intends to leverage its ODM capabilities in
wireless technologies, BLDC motor controllers, and IoT-driven smart solutions by
working with customers from concept, design, product realization, to bulk
manufacturing.
• Focus on box-build solutions, which typically command higher margins: It has
capabilities in providing full-box-build solutions, including PCBAs, plastic injection
moulding and wiring and metal fabrication – which will help its customers for
localizing their manufacturing vs. being dependent on international vendors
earlier.
• Projections: We expect revenues of Rs 1.2/1.4bn in FY24/25 from consumer
electricals and order inflow of Rs 2.1/2.3bn in FY24/25.

Consumer segment will see revenue CAGR of 17% (FY23-25) In this segment, major orders will come from wearables,
consumer appliances, lighting, etc.
Consumer Growth (YoY)
Order book
1600 CAGR of 17% 80%
1399
8000
1400 70%
6849
1166 7000 CAGR of 70%
1200 60%
1013 6000
1000 CAGR of 50%
4510
in Rs mn
39% 5000
in Rs mn
800 40%
591 4000 CAGR of 74%
600 30%
3000 2383
368
400 271 293 20% 2000 1270
200 10% 1000 586
261 280
0 0% 0
Product mix helped Kaynes garner higher GM in consumer segment vs. other players
Syrma Kaynes
56.8% 55.7%
60% 53.7%
48.2%
50%
53.0%
40%
41.7% 41.9% 29.6%
38.1% 29.0% 29.0%
30%
20%
10% 17.1% 17.3% 17.4%
0%
5. Aerospace & defence, 2% of revenue: Making big strides in this segment

• Kaynes will set up infrastructure and develop skills to address complex avionics
assembly and testing.
• By focusing on key customers and emerging as a key system integrator it will gain
wallet share and move up the value chain to manufacture complex products for
space electronics.
• It has qualified as an aerospace OEM for a long-term contract with an annual value
of Rs 350mn.
• We expect 47% revenue CAGR from this segment over the next two years with
revenue at Rs. 338mn/489mn and order book of Rs 750mn/1,071mn in FY24/25

A&D to see revenue CAGR of c. 47% over the next 2 years Gross margins for A&D segment to rise to 28% in FY24
A&D Growth (YoY) 32% Gross margin
600 300%
31%
489 250% 31%
500
CAGR: 47% 30%
30% 30%
200%
400
338 29%
150% 28% 28%
in Rs mn
300 28%
225 100%
200 27% 27% 26%
200 178
136 50%
26%
100 58 0% 25%
0 -50% 24%
6. Healthcare, 6% of revenue: Rising presence in high-end diagnostics and

start-ups
• India has developed into a key centre for high-end diagnostics services because it’s
a large market (sizeable population) and as a result of substantial capex in this
field. Kaynes intends to focus on this segment by creating additional teams in
product realization, leveraging existing relationships with customers, and
acquiring larger businesses in the hospital-equipment sub-segment.
• Kaynes is associated with a number of healthcare start-ups.
• In this segment, the biggest challenge is taking an idea from the concept stage to
the complete-product-realization stage.
• It also proposes to tap existing relationships with customers that have presence
across multiple industry segments.
• We expect revenue CAGR of 30% over FY24-25 from this segment with revenue at
Rs 0.88bn/1.14bn in FY24/25 and order book of Rs 2.4/3.3bn.
To see a revenue CAGR of c. 30% in next 2 years Gross margin profile for medical segment
Medical Growth (YoY) Gross margin
1142 45% 41.8%

1200 CAGR: 30% 120%
40% 35.1%
1000 100%
879 35%
80% 27.8% 27.5% 28.7% 28.5% 28.5%
800 712 30%
676
in Rs mn
60% 25%
600
462 40% 20%
400 15%
230 20%
10%
156
200 0% 5%
0 -20% 0%

7. Internet of Things and Information Technology, 6% of revenue

• The adoption of IoT for digital utilities and Smart Cities, as well as industries like
manufacturing, and automotive, will fuel demand for industrial IoT applications in
the future.
• The IoT market in India will see a CAGR of 16% over 2021-26, touching a size of Rs
135bn in 2026. This will be backed by strong connectivity and coverage, rising
internet penetration, surge in smart applications adoption, new business models,
and government initiatives.
• We expect c.40% revenue CAGR for Kaynes from this segment over the next 2
years.
We expect revenues of Rs 0.88bn/1.3bn in FY24/25 Strong order booking will continue in IT/IoT with CAGR of
71% over FY23-25
IT/IoT Growth (YoY)
Order book
1400 1318 100%
4651
1200 80%
CAGR (FY23-
25E): 40% 60%
1000 878 CAGR: 71%
40% 3047
in Rs mn
800 676 in Rs mn
20%
600
403 0% 1589
336 375
400
247 -20%
806
200 -40% 323 386 394
0 -60%
Revenue CAGR over FY23-25 automotive 40%, industrial 87%, railways 43%, medical 30%, consumer 17%, IT 40%, A&D 47%
Medical Consumer IT A&D Automotive Industrial Railways
100%
596 731 1351 1986 2781
90% 631
80%
2105 3041
70% 1394 6690 10637
1178
60% Overall revenue CAGR (all
in Rs. mn
segments together) for

50% Kaynes will be 53% over
747 1004
2370 4279 next two years, with order
40%
6033 book growing 41%
8447
30%
200 136 178
247 375 225
20% 403 676
368 338 489
591 878 1318
10% 293 1013
1166 1399
462 712
230 676 879 1142
0%
FY20 FY21 FY22 FY23 FY24E FY25E

From EMS to value-added ODM expertise

With over three decades of experience, Kaynes has gained technological expertise and Kaynes was focused on becoming an
transformed from an EMS provider to a design-led manufacturer providing value-add integrated EMS player, and is now keen
ODM services. Kaynes has leveraged upon its capabilities of in-house design and R&D on increasing its ODM share
team to strengthen its ODM capabilities.
Kaynes continues to see strong growth from ODM offerings

(Rs mn) FY19 FY20 FY21 FY22 FY23E FY24E FY25E
ODM revenues 142 76 184 278 338 575 865
as a % of revenues 3.9% 2.1% 4.4% 3.9% 3.0% 3.2% 3.3%
In-house ODM capabilities developed by the company

Products Vertical Description
Supported a European customer with design and qualification
Smart meters Industrial
of smart meters suitable for Indian standards
Start-up entering into at-home diagnostics markets. Kaynes
Home diagnostic products Medical
undertook the design, prototype and bulk manufacturing
Kaynes designed and developed a street light controller with a
Streetlight controllers IoT/IT built-in energy meter. Product qualified for reliability and
taken up for bulk manufacturing, including exports
Support in IoT-driven smart solution for appliances. Handled
IoT appliance Consumer
design, prototype, and currently doing bulk manufacturing
Supported a customer looking at localizing CKD unit
Consumer audio Consumer
manufacturing through assembly of SKD unit
Focused on getting larger revenue share from OEMs, box-builds for better margins
As an ESDM player, Kaynes focuses on catering to OEMs and ensures more customers
with larger revenue share by providing the following: (1) in-house building of test
fixtures, (2) product reliability at closer proximity with faster turn-around times, (3)
complex prototypes in shorter lead times and setting-up product- or box-build
manufacturing facilities with zero defects. It provides almost all services in-house –
from electronics to tooling, sheet metal, magnetics, cable harness, and test benches.
This increases the share of box-builds, which will positively impact revenue and
margins.
Capex for upgrading and expanding existing facilities, making new ones
Kaynes intends to deploy up to Rs 2.4bn to fund: Its planned capex will allow it to
• Capex towards upgrading and expanding its existing facility at Mysuru, Karnataka, build a high value-added consumer
electronic product portfolio, and
Unit 1 and Manesar, Haryana as well as setting up new facility at Chamarajanagar,
expand its business with customers
Karnataka for full box-builds
Kaynes will add 9 SMT line over next 2 years

Syrma SGS technologies Kaynes Technologies Avalon Technologies Cyient DLM
30 27
24
25
20
No of SMT lines
20
15
15 11 11 11
10 8 8
6 6 6
5
0
FY20 FY23 Post Expansion

Financial story in the charts

Kaynes will see a revenue CAGR of c.53% over FY23-25 We expect gross margin to remain in range of 28-30%. But,
backed by strong growth in automotive, industrial and since KTL is improving its share in box-builds, ODM, and
railways segments revenue mix, gross margins could get a lift
Revenue Growth (YoY) Gross margin
30000 CAGR of 53% 80% 35%

26213
70% 34%
25000
60% 33% 33.7% 33.6%
20000 17970 32%
50%
in Rs mn
31%
15000 CAGR of 33% 40% 31.3%
11261 30%
30% 30.2% 30.1%
10000 7062 29%
20% 29.2%
5000 3642 3682 4206 28% 28.9%
10% 27%
0 0% 26%
Kaynes is improving its cost matrix by enhancing revenue mix and increasing volumes
Realization table FY20 FY21 FY22 FY23 FY24E FY25E
Revenue/ Components (Rs/ units) 7.5 8.3 8.8 10.0 11.3 13.5
Gross Profit/Components (Rs/ Unit) 2.5 2.6 2.7 3.0 3.4 4.0
Employee expenses/Components (Rs/ unit) 0.9 0.9 0.8 0.7 0.7 0.8
Other expenses/Components (Rs/ unit) 0.7 0.7 0.7 0.8 0.9 1.1
EBITDA/Components (Rs/unit) 1.0 1.0 1.2 1.5 1.7 2.0
EBITDA margin (%) 13.4% 11.9% 13.3% 14.9% 14.6% 14.5%
Source: PhillipCapital India Research estimates, Company Data
OPM to expand with economies of scale To see steady earnings growth over the next 3-4 years
EBITDA OPM (%) PAT PATM (%)
4000 3791 16.0% 3000 2,766 12.0%

10.6%
10.0%
3500 14.9% 14.6% 14.5% 14.0%
2500 10.0%
8.5%
3000 13.4% 13.3% 12.0%
2629
11.9% 2000 1,792 8.0%
2500 10.0%
5.9%
in Rs mn
in Rs mn
2000 9.6% 8.0% 1500 6.0%

1683 4.7% 4.5%
1500 6.0% 952
1000 4.0%
938 2.7%
1000 4.0%
492 501 418
350 500 2.0%
500 2.0% 173 190
97
0 0.0% 0 0.0%
Kaynes will continue to take in orders where it provides high value-add services, which will help in
increasing the average order value and lead to margin expansion.

Capex for capacity expansion will improve gross block New capex will improve revenue potential in turn will
increase the Asset T/o
Gross block CAPEX
Gross block/ turnover
6000 5456
6
5000 4456 5.5
5
4.8
4000 4.5
4 4.2 4.0
in Rs mn
3.6
3000 3.4
2400 3
2056
2000 1685 2
1245
1021 1000
808
1000 581 1
312 422
105 250
0 0
Du Pont analysis of Kaynes for FY20-25

Du Pont Analysis Mar-20 Mar-21 Mar-22 Mar-23 Mar-24 Mar-25
Net profit margin (%) 4.68 4.51 5.92 8.45 9.97 10.55
Asset turnover (x) 1.44 1.48 1.86 1.02 1.46 1.79
Leverage multiplier (x) 2.35 1.95 1.82 1.12 1.06 1.01
RoE (%) 15.9 13.0 20.1 9.6 15.3 19.1
Strong growth and higher asset utilisation will drive ROE/ROCE growth ahead.
RoE RoCE
30
25 25.2
22.3
20 20.5 20.6
19.5
16.8
16.7
15 15.5 15.7
14.6
13.6
12.6
10 10.4 9.9
0

Working capital break-up; Short term RM shortage may impact inventory levels, but
in long term this will improve dramatically due to development of component
ecosystem in India
Debtors days Inventory days Creditor days
160
131 133 135

140 128
With the development of the component
120 106 ecosystem in India and semiconductor
103 99 99 102 101 99 manufacturing coming to India, we expect a
number of days
100 92 93
81 77
improvement in working capital cycle for the
80 68 71 68 71 71 domestic players. Additionally, with
65
backward integration plus economy of scale
60
will help in Kaynes in improvement in WC
40 improvement and margins.
20
0
Cash flow will improve going ahead but since Kaynes is in FCF to PAT; Industry in which Kaynes operate generally
expansion mode due to which lot of Cash flow will fund only requires higher capex to gain competitive intensity hence
working capital requirements. free cash flow generation takes time.
1600 FCF to PAT
200%
1400
1200 150%
1000 100%
800 50%
in Rs mn
600 0%
400 -50%
200 -100%
0 -150%
-200
-200%
-400
-250%
-600 FY19 FY20 FY21 FY22 FY23 FY24E FY25E
Kaynes will significantly reduce its debt to improve the Return Ratios and Net Debt
levels.
Debt: Equity Net debt: Equity
1.5
0.5
-0.5
-1

Outlook and Valuation

We expect Kaynes to see a strong growth mainly due to:
• Favourable industry tailwinds
• Development of component/chips ecosystem in India leading to improving supply
chains, in turn benefiting Indian EMS companies in terms of margins and working
capital improvement,
• Strong product mix and focus on adding high-margin segment, (4) on-boarding
new value-added customers
• Capacity expansion on strong order book visibility, backward integration (bare PCB
and OSAT)
• Increasing its presence in the domestic market and looking for export’s
opportunities.
With all these positives, we expect the company’s revenue/EBITDA/PAT CAGR of

c.53%/50%/70% over FY23-25 with OPM of 14.6%/14.5% in FY24/FY25 and earnings
growth of c.82%/54% in FY24/25. We value the company at 50x FY25 EPS based on
strong financials, improved ROCE/ROE of c.26%/20% in FY25, and better working
capital improvement visibility.
At CMP, the stock trades at a PE of 37x on FY25 EPS. We initiate coverage with a Buy
rating and target of Rs 2,378.

Company overview
Company’s organizational structure
The business is classified based on the stage of services that it provides to its
customers.
➢ OEM – turnkey solutions – box build: This segment involves complex box builds,
sub-systems and products across industry verticals.
➢ OEM – turnkey solutions – PCBA: It undertakes turnkey EMS of PCBAs, cable
harness, magnetics and plastics – ranging from prototyping to product realisation
including mass manufacturing.
➢ ODM solutions: It offers ODM services in smart metering, smart street lighting,
brush-less DC technology, gallium nitride-based charging technology and provides
IoT solutions for making smart consumer appliances or devices IoT connected.
➢ Product engineering and IoT solutions: It offers conceptual design and product
engineering in industrial and consumer segments. Services include PCB cladding to
embedded design and submitting proof of concept to prototyping.
Revenue break-up for the services offered by Kaynes

Segmental revenues (in Rs mn) FY20 FY21 FY22 FY23
OEM – Turnkey solutions – Box Build 942 1276 1988 3378
as a % of overall revenues 26% 30% 28% 30%
OEM – Turnkey solutions – PCBA 2290 2509 4436 6982
ODM solutions 76 184 278 338
Product engineering and IoT solutions 374 237 360 563
Total 3682 4206 7063 11261
Higher box-builds revenue will lead to better margins

Kaynes’ share of revenue from box builds increased marginally to 30% in FY23 from
26% in FY20. As it develops competencies across its services towards more complex
assemblies, its customers will become more comfortable with its box-build capabilities.
A higher share of box builds will result in higher margins while Kaynes already earns
industry-leading margins.

Manufacturing
• Kaynes operates eight strategically located manufacturing facilities in the states of
Karnataka, Haryana, Himachal Pradesh, Tamil Nadu, and Uttarakhand.
• Some of the manufacturing facilities are approved under the Electronics Hardware
Technology Park Scheme of Software Technology Park in India.
• As of 31 December 2021, Kaynes had the capacity to assemble 600mn
components.
• Facilities in Manesar (Haryana), Chennai (Tamil Nadu), and Parwanoo (Himachal
Pradesh) are close to customers – which helps it to reduce its logistics cost,
increase efficiency, and ensures that capex stays minimal.
Location Industries Area (Sq.ft) Owned/ Leased

Mysore, Karnataka (Unit 1) Owned
Railways, Defence and Aerospace, Medical and Industrials 126,085
Mysore, Karnataka (Unit 2) Leased
Parwanoo, Himachal Pradesh IT, Telecom, Industrial, Medical and Automotive 5,253 Owned
Selaqui, Uttarakhand IT and Industrial 5,500 Leased
Bengaluru, Karnataka (Unit 1) Automotive, Medical, IoT, IT and Industrial 12,425 Leased
Bengaluru, Karnataka (Unit 2) Automotive and Industrial 13,447 Leased
Chennai, Tamil Nadu Automotive, Medical and Industrial 10,125 Leased
Manesar, Haryana Automotive, Medical and Industrial 88,000 Leased
Product lifecycle support, comprehensive manufacturing capabilities

Kaynes collaborates with its customers through the entire product life-cycle and after-
sales and end-of-life services including assisting with concept creation, product
development, prototyping, testing and mass manufacturing. It has customised lines for
box building, integration and testing, manufacturing facilities for cable forms and
harnesses, plastic moulding, fabrication facilities as well as burn-in/soak-test facility.

Kaynes’ manufacturing setup
R&D set-up: 24 employees, facility in Mysore

• As of 31 December 2021, the research and development team comprised 24
employees, including engineers, designers and other workers.
• Kaynes has a dedicated research and development facility in its Mysore
(Karnataka) facility.
• It is investing on better equipment and technologies, which will increase
operational efficiencies and better the rate of output per hour. This kind of vertical
integration will lead to a reduction in time to market, and will solidify Kaynes’
position in the EMS space in India.
Focus on ODM services because this earns higher margins

Kaynes takes care of everything for its customers, right from designing to product
assembly and further after-sale services. It is at a nascent stage, and with more
economies of scale and ramp up in business operations, it will be investing more in
providing ODM services to its customers. With scale, its customers’ trust in the
company will increase, crucially in terms of designing, which will increase the share of
its ODM (higher-margin business).

Its Mysore – Unit 1 is approved under the Electronics Hardware Technology Park
Scheme of Software Technology Park of India, Bengaluru and Chennai facility is
approved under 100% Export Oriented Unit Scheme of Madras Export Processing Zone,
Chennai, both schemes offer incentives that are similar to an SEZ.
Manufacturing process
Quickly scalable facilities

Its facilities are scalable within a short period without incurring significant capex due
to short procurement and installation times for SMT lines. All manufacturing lines are
fungible and with flexibility to service customers across industry verticals and across
diverse product requirements.
Installed capacity and capacity utilisation

SMT components
Facility (SMT components 2019 2020 2021 2022
/annum Installed Actual Installed Actual Installed Actual Installed Actual
in millions) capacity production Utilization capacity production Utilization capacity production Utilization capacity production Utilization
Mysore, Karnataka (Unit 1 and 2) 420.7 399.9 95% 464.9 360.9 78% 458.3 377.8 82% 652.6 587.8 90%
Parwanoo, Himachal Pradesh 72.6 34.6 48% 72.6 30.8 42% 60.5 27.4 45% 72.6 26.8 37%
Manesar, Haryana 178.4 176.6 99% 178.4 100.8 56% 148.7 102.4 69% 196.2 184.0 94%

PCB assembly
Facility (SMT components / 2019 2020 2021 2022
annum in millions) Capacity Production Utilization Capacity Production Utilization Capacity Production Utilization Capacity Production Utilization
Mysore, Karnataka (Unit 1 and 2) 13 13 95% 14 11 78% 29 24 82% 37 33 90%
Parwanoo, Himachal Pradesh 2 1 48% 2 1 42% 2 1 45% 3 1 37%
Manesar, Haryana 2 2 99% 3 2 56% 3 2 69% 5 5 94%
Experienced board to drive the next leg of growth

Key managerial persons will help the company achieve its goals faster
Person Designation Description
• 33+ years of experience in EMS.
Ramesh Kunhikannan MD & Promoter • Associated with the company since inception.
• Bachelor of Electrical Engineering from NIE, Mysore.
Savitha Ramesh Chairperson • Associated with the company since inception.
• B. Com from University of Madras.
Jairam Paravastu Sampath CFO • Associated with the company since 2011.
• B. Tech from IIT Madras and PGDM from IIM Ahmedabad.
• 15+ years of experience in accounting and finance.
Rajesh Sharma CEO • Bachelor's degree from the University of Bangalore and an associate
member of the ICAI of India.
• 20+ years of experience across multiple verticals in Kaynes.
Head of commercial and corporate
Sajan Anandaraman • Bachelor's degree in electronical and electronics engineering from
affairs
University of Calicut.

Financials
Income Statement Cash Flow
Y/E Mar, Rs mn FY22 FY23 FY24E FY25E Y/E Mar, Rs mn FY22 FY23 FY24E FY25E
Net sales 7,062 11,261 17,970 26,213 Pre-tax profit 591 1,260 2,327 3,546
Growth, % 67.9 59.4 59.6 45.9 Depreciation 132 187 267 327
Other operating income - - - - Chg in working capital (742) (1,629) (713) (1,885)
Raw material expenses 4,932 7,868 12,715 18,649 Total tax paid (22) (503) (535) (780)
Employee expenses 602 771 1,118 1,560 Cash flow from operating activities 211 (419) 1,381 1,126
Other Operating expenses 591 939 1,508 2,213 Capital expenditure (422) (581) (2,400) (1,000)
EBITDA (Core) 938 1,683 2,629 3,791 Chg in investments (33) (4,450) 0 0
Growth, % 87.0 79.5 56.2 44.2 Chg in marketable securities - - - -
Margin, % 13.3 14.9 14.6 14.5 Cash flow from investing activities (445) (4,933) (2,220) (780)
Depreciation 132 187 267 327 Free cash flow (54) (5,089) (674) 454
EBIT 806 1,496 2,362 3,464 Equity raised/(repaid) 228 6,229 - -
Growth, % 101.2 85.6 57.9 46.7 Debt raised/(repaid) 301 (336) (500) (464)
Margin, % 11.4 13.3 13.1 13.2 Dividend (incl. tax) - - - -
Interest paid 256 349 215 138 Cash flow from financing activities 272 5,543 (715) (602)
Other Income 41 114 180 220 Net chg in cash 38 191 (1,554) (256)
Non-recurring Items - - - -
Pre tax profit 591 1,260 2,327 3,546
Tax provided 174 308 535 780
Profit after tax 418 952 1,792 2,766
Valuation Ratios
Minorities/JV shares - - - - FY22 FY23 FY24E FY25E
Net Profit 418 952 1,792 2,766 Per Share data
Growth, % 120.1 127.9 88.2 54.4 EPS (INR) 9.0 16.4 30.8 47.6
Net Profit (adjusted) 418 952 1,792 2,766 Growth, % 98.2 81.1 88.2 54.4
Unadj. shares (m) 46 58 58 58 Book NAV/share (INR) 43.8 164.9 195.8 243.3
Wtd avg shares (m) 46 58 58 58 FDEPS (INR) 9.0 16.4 30.8 47.6
CEPS (INR) 11.9 19.6 35.4 53.2
CFPS (INR) 4.6 (7.2) 23.7 19.4
Balance Sheet DPS (INR) - - - -
Y/E Mar, Rs mn FY22 FY23 FY24E FY25E
Cash & bank 216 4,860 3,306 3,050 Return ratios
Marketable securities at cost - - - - Return on assets (%) 8.0 9.3 11.6 14.7
Debtors 1,977 2,271 3,389 4,733 Return on equity (%) 20.5 9.9 15.7 19.5
Inventory 2,264 4,132 5,042 7,209 Return on capital employed (%) 22.3 14.6 20.6 25.2
Loans & advances 113 226 226 226 ROIC (%) 14.3 (409.1) 86.9 77.0
Other current assets 422 1,056 1,056 1,056
Total current assets 4,992 12,544 13,019 16,274 Turnover ratios
Investments 15 33 33 33 Asset turnover (x) 5.9 7.1 4.8 6.0
Gross fixed assets 1,685 2,056 4,456 5,456 Sales/Net FA (x) 5.8 7.0 4.8 5.9
Less: Depreciation (575) (763) (1,030) (1,358) Working capital/Sales (x) 2.5 1.2 2.0 2.5
Add: Capital WIP 83 293 293 293 Receivable days 92.2 81.4 67.9 67.9
Net fixed assets 1,217 1,610 3,743 4,416 Inventory days 99.5 102.2 101.0 99.0
Non - current assets - - - - Payable days 93.5 77.1 70.9 71.0
Total assets 6,224 14,187 16,795 20,722 Working capital days 146.8 314.1 179.7 145.9
Trade Payables 1,641 2,229 3,544 5,170 Liquidity ratios

Provisions 52 62 62 62 Current ratio (x) 2.3 4.4 3.1 2.8
Total current liabilities 2,151 2,854 4,169 5,795 Quick ratio (x) 0.7 1.8 1.5 1.4
Non - current liabilities 1,763 1,436 936 472 Interest cover (x) 3.2 4.3 11.0 25.1
Total liabilities 4,187 4,584 5,399 6,561 Total debt/Equity (x) 0.8 0.1 0.1 0.0
Paid - up capital 462 581 581 581 Net debt/Equity (x) 0.7 (0.4) (0.2) (0.2)
Reserves & surplus 1,564 9,009 10,801 13,566
Minorities 11 13 13 13 Valuation
Shareholders’ equity 2,037 9,603 11,395 14,161 PER (x) 200.7 110.9 58.9 38.2
Total equity & liabilities 6,224 14,187 16,795 20,722 PEG (x) yoy growth 2.0 1.4 0.7 0.7
Price/Book (x) 41.4 11.0 9.3 7.5
EV/Net sales (x) 15.2 9.1 5.7 3.9
EV/EBITDA (x) 114.1 60.6 39.2 27.1
EV/EBIT (x) 132.7 68.2 43.6 29.7
Source: Company, PhillipCapital India Research

Syrma SGS Technology Ltd (SYRMA IN)

Riding on Capex + EV + B2C with RFID an edge
19 July 2023
Syrma is a technologically focused engineering and design company. It is the largest EMS
player in India in terms of revenue and scale. It provides turnkey electronics manufacturing
BUY
CMP RS 476
services, especially in precision manufacturing. Its end-user industries are diverse, including
TARGET RS 619 (+30%)
industrial appliances, automotive, healthcare, consumer products, and IT. Its
manufacturing infrastructure enables it to undertake a good mix of products with flexible SEBI CATEGORY: SMALL CAP
production volume requirements. Its product portfolio includes PCBAs, RFID tags, and
COMPANY DATA
electromagnetic and electromechanical parts. It operates through 11 manufacturing
facilities in Himachal Pradesh, Haryana, Uttar Pradesh, Tamil Nadu, and Karnataka. As of MARKET CAP (RSBN) : 84
FY23, Syrma has an order book of Rs 31bn, which is 1.5x of FY23 revenue; executable over MARKET CAP (USDBN) : 1.0
52 - WK HI/LO (RS) : 512 / 248
next 12-18months.
LIQUIDITY 3M (USDMN) : 6
PAR VALUE (RS) : 10
Why do we like Syrma?
➢ Diversified end-user industry base: Syrma is well diversified in terms of the number of SHARE HOLDING PATTERN, %
Mar 23 Dec 22
industries it serves and the customers within those industries. This provides a natural
PROMOTERS : 47.3 47.3
hedge. DII : 8.6 7.6
➢ Growing customer base with increasing wallet share: Syrma caters to 200+ customers FII : 4.6 4.9
in 24+ countries across industries and has seen 26% CAGR in wallet share with its top-20 OTHERS : 39.5 40.2
customers in FY20-22. In FY23, it on-boarded 8-10 new customers and expects to start
PRICE PERFORMANCE, %
production for them by Q4FY24. We expect strong revenue growth ahead as it adds new 1MTH 3MTH 1YR
customers and ramps up wallet share. ABS 8.0 63.3 NA
➢ Focused on technology innovation; expanding product portfolio and service offerings: REL TO BSE 1.8 50.7 NA
Syrma is aggressively investing in technology infrastructure and automating its
manufacturing processes to deliver better efficiencies, which will also result in higher PRICE VS SENSEX
output per hour. From being an assembler, it is now moving towards increasing value 230
addition to customers by being an integrated player with services ranging from product
design to box-build assembly plus its RFID segment will provid it an edge over 180
competitors.
➢ Robust supplier network: Syrma does not rely on a single supplier for sourcing materials 130
and components. With economies of scale, we expect it to be able to negotiate better
credit terms and safeguard its business operations from any supply-chain disruptions. 80
➢ Entry into new industry verticals: Syrma intends to entering new high-growth segments Aug-22 Nov-22 Feb-23 May-23
SYRMA IN BSE Sensex
such as aerospace & defence, medical electronics, and LED lighting. These new industries
will open up fresh revenue streams, increase its customer base, and lead to stronger
KEY FINANCIALS
order booking – thus providing strong revenue visibility.
Rs mn FY23 FY24E FY25E
➢ M&As for inorganic growth: Syrma will pursue strategic acquisitions in different
Net Sales 20,484 29,316 40,240
geographies. In 2021, it acquired SGS Tekniks and Perfect ID, which has helped it to EBITDA 1,878 2,655 3,823
increase its cross-selling opportunities, grow its customer base, diversify its product Net Profit 1,231 1,856 2,737
portfolio, and bring technology improvement. EPS, Rs 7.0 10.5 15.5
PER, x 68.2 45.2 30.7
Outlook and valuation: We expect Syrma SGS to report revenue/EBITDA/PAT CAGR of EV/EBITDA, x 1.9 1.7 1.1
40%/43%/49% over FY23-25 mainly backed by: (1) Strong order book of 1.5x of FY23 revenue, PBV, x 5.5 4.9 4.2
(2) Increasing customer base with rising wallet share from existing customers, (3) focus on ROE, % 11.6 11.3 14.7
technologies and innovation to increase product offerings, (4) entry into new business
verticals (aerospace & defence, medical) which will improve strong order book visibility, (5)
highest capacity in the industry; new capacity addition will give it an edge over peers, (6) dagarwal@phillipcapital.in
favourable industry tailwinds (7) Economies of scale and robust supplier network will help
Syrma to improve its sourcing which will benefit it in improving working capital and Bhavanishankar Kumawat, Research Associate
profitability. Syrma will see FY24/25 earnings growth of c.51%/47%; based on strong earning bkumawat@phillipcapital.in
CAGR, improving returns ratios, and improved working capital visibility, we value the
Nikhil Kandoi, Research Associate
company at 40x its FY25 EPS (trades at 31x FY25 EPS at CMP). Initiate coverage with a Buy nkandoi@phillipcapital.in
rating and target of Rs 619.

SYRMA SGS TECHNOLOGY LTD INITIATING COVERAGE
Client adds are diverse, provides a natural hedge

Strong client relationships spanning various industries…
Syrma’s product portfolio has helped it forge strong relationships with its major clients. Syrma has a diversified and growing
The varied applications of its products have enabled it to build a wide customer base end-user industry base and wide
across many end-user industries. Some of the company’s marquee customers include product basket, which helps in creating
TVS motor, A.O Smith India, Robert Bosch Engineering, Eureka Forbes, Cyan Connode, a hedge.
Atomberg, Hindustan Unilever and Total Power Europe.
…acts as a hedge against

Its wide customer base and their presence across diversified industries acts as a natural
hedge against a downturn in any one industry vertical. During FY22, Syrma catered to
200 customers, of which 16 customers have been associated with the company for 10+
years. Top-5/10/20 customers contributed 35%/51%/67% of revenues in FY23. No
customer accounts for more than 10-12% of its overall revenues, and low customer
concentration shields the business from any unforeseen disruption.
Syrma added big global clients in FY23, obtaining production approvals

In FY23, it took 8-10 global giants on board as customers, for both the domestic and Recently, Syrma has been adding big
export markets, spread out across industry verticals. The dialogue with these new customers in segments like railways and
clients has been robust and the company expects to close production audits and EVs, which will drive growth for the next
2-3 years
approvals in FY24 and start production by Q4FY24.
Sharp jump seen in customer additions in the last 2 years % of total revenues contributed by customers who have
been with the company for 3+ years
180 90% 83.2%
93 customers have been 158
160 80%
with the company for 3+ years 70.3%
140 70% 64.6%
number of customers
120 60%
100 50%
80 40%
60 48 30%
42
40 20%
20 10%
0 0%
Syrma has lowest Customer concentration amongst peers; meaning it is focusing on

diversification.
80% Customer Concentration - Top 5
67.5%
70%
60%
50% 44.0%
35.0% 37.0%
40%
30%
20%
10%
0%
Kaynes Technologies Syrma SGS Ltd Avalon Technologies Cyient DLM
Ltd Ltd
Source: Company Data, PhillipCapital India Research estimate

Key Customers & FY23 revenue contribution from each segment.
31.4%
We expect Syrma to increase share from
segments such as industrials, consumer,
32.2% automobile (largely EVs) and railways
over the next 2-3 years because of new
customer additions and increasing share
of exports revenue
19.7%
8.0%
8.7%
Increasing wallet share with existing customers

Syrma intends to increase its wallet share with existing customers by working on
developing a broader product portfolio for them. The company has built long-standing Syrma’s aggregate wallet shares with
relationships with some customers, which it hopes to leverage by banking on cross- top-10/top-20 customers both saw a
selling and upselling opportunities that its product portfolio offers. Its aggregate wallet CAGR of 26% in FY20-22
shares with top-10/top-20 customers both saw a CAGR of 26% in FY20-22. Syrma plans
to use its expanded geographical footprint to address sourcing requirements of existing
multinational clients.
A natural hedge for Syrma is its diverse customer base and its presence in multiple
industries. It classifies its industries based on end-user applications; recently, Syrma
has increased its share from the consumer sector.
Syrma’s some of the Key customers have grown at higher double digit CAGR.
Nature of
Companies FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 CAGR
Business
TVS Motor Two-Wheeler, EV 110,240 124,239 135,739 167,018 201,600 188,493 194,208 243,553 319,740 14%
Y-o-Y (%) 13% 9% 23% 21% -7% 3% 25% 31%

Industrial &
Bosch 104,419 112,426 118,722 120,850 98,416 97,162 117,816 149,293 5%
Mobility, etc
Y-o-Y(%) 8% 6% 2% -19% -1% 21% 27%
AO Smith Water Heaters 10720 20,000 25,760 31,760 33,120 36,720 43,760 46,000 23%
Y-o-Y(%) 87% 29% 23% 4% 11% 19% 5%

R&D, manufacturing facilities, and supplier network

R&D – unlocking the potential
Syrma has 3 dedicated R&D facilities, 2 of which are located in Chennai, India, and 1 in
Stuttgart, Germany. Its R&D efforts are focused on:
• New product innovation and quality improvements.
• Developing design, engineering, and ODM (Original Design Manufacturer)
capabilities.
• Exploring technological innovation and development.
R&D expenses as a % of sales. Syrma has the best R&D structure in place as of FY22
40 R&D expenses as a % of sales 0.5%

0.4%
35 0.4%
0.4% By investing in R&D, Syrma aims to
0.4% 0.4%
30 widen its product offerings to
0.3% customers, which will help it to increase
25
its wallet share with them and enable
in Rs mn
0.3%
20 0.2% cross-selling opportunities
0.2%
15
0.2%
10 0.1%
5 0.1%
0 0.0%
FY19 FY20 FY21 FY22
Source: Syrma SGS Data, PhillipCapital India Research
Strong focus on R&D

• The team overlooking R&D operations consists of 77 employees. There are 106 Along with R&D capabilities, merger
employees in the engineering and R&D department, constituting 12% of permanent between Syrma and SGS Tekniks
employees; 27% of total revenue come from R&D-led ODM capabilities. widened Syrma’s cross-selling
opportunities for RFID tags and
• Syrma SGS acquired SGS Tekniks in September 2021 and Perfect ID in October
magnetic products to its existing
2021 to expand its market share in the EMS segment in India. SGS Tekniks is an customers
EMS company headquartered in Gurgaon, while Perfect ID specialises in custom
RFID tags and readers, and is headquartered in Chennai. It expanded both
manufacturing facilities and in-house R&D capabilities in Germany by merging with
SGS Tekniks. It also acquired the infrastructure and know-how for manufacturing
of RFID label tags and passive inlay tags from Perfect ID.
R&D initiatives include:

• Collaborative design from concept to completion
• Evaluating suitable technologies
• Benchmarking similar products in the market
• Preparing specifications
• Research on suitable materials and components
• Innovation with new approaches
• Design of product architecture
• Failure mode analysis
• Development of firmware, hardware, and software
• Design simulation and validation
• Prototype sampling
• Regulatory compliance testing

Manufacturing facilities are focused on automation

Manufacturing facilities are export and PLI-oriented
Syrma’s manufacturing facilities are strategically located, allowing it to export easily. It Syrma has strategically located its PLI-
is eligible for PLI in telecom and networking products in categories such as access and eligible manufacturing facilities to
customer-premise equipment, IOT access devices, and other wireless devices. It is also efficiently cater to the requirements of
provisionally selected as a beneficiary under white goods PLI scheme – to make control customers in north and south India
assemblies for IDU and ODU or remotes for ACs and LEDs.
Automated RFID manufacturing line

The company has invested in a fully automated line for manufacturing of RFID
products, which require minimal manual intervention. It can produce 100,000 tags a Automated facilities lead to higher
day or 2.5mn tags a month. It has also been investing in vertical integration over the output per hour
years, so along with RFID tags, it can also manufacture customized tags and other
products where RFID sensors may be incorporated.
Syrma SGS has highest SMT lines amongst its Peers

Syrma SGS technologies Kaynes Technologies Avalon Technologies Cyient DLM
30 27
24
25
20
No of SMT lines
20
During its IPO, Syrma had 16 SMT
15
15 lines but as of FY23 it has expanded
11 11 11 to 25 lines, and plans to increase
10 8 8 these to 28 in the next 2-3 years.
6 6 6
5
0
FY20 FY23 Post Expansion
Installed capacity for Syrma’s offerings and utilisation levels from FY20-22
Capacity utilisation Syrma also has in-circuit testers (ICT)

Products Installed capacity (per annum) and flying probe testers (FPT), which
FY20 FY21 FY22
ensure that every component on the
PCBA 10,120mn components and 3.6mn assemblies 65% 85% 87%
PCBA is tested effectively and thus
RFID 300mn tags 65% 85% 86% ensures high reliability
Magnetics 6mn coils 65% 80% 83%
IT Products 7.2mn modules 65% 80% 85%
Zones of autonomous creation 180mn components 50% 75% 82%
RFID label tags 18mn tags 35% 55% 75%
Source: Industry reports, Syrma SGS Data
The state-of-the-art R&D and

Focus on R&D and latest manufacturing facilities = Own ODM solutions manufacturing facilities is helping
State-of-the-art manufacturing capabilities and focus on in-house R&D has led Syrma Syrma to evolve from being from just a
to develop its own ODM solutions for customers. Continued focus on ODM will help PCBA player to an integrated Electronics
the company to gain wallet share with existing customers and to garner better System Design and Manufacturing
operating margins. (ESDM) solutions provider

De-risked supplier concentration

Syrma is not reliant on any one vendor for a majority of its components
As of 2022, it had a diverse network of c.1,669 suppliers, which ensures availability of A diverse supplier network hedges
raw materials and components and allows it negotiate cost-effective rates with the company’s business operations
suppliers at good credit terms. Syrma has also focused on vertical integration in each since it ensures availability of raw
industry. It can leverage its injection moulding equipment to manufacture custom tags material and components at cost-
and other products in which RFID sensors can be incorporated. effective rates
A diverse supplier network hedges the company’s business operations since it ensures
availability of raw material and components at cost-effective rates.
Some of the major suppliers of the company are:

• AdvanIDe Holdings Pte Ltd
• Elektronika Sales Private Limited
• Kingford, Kinji (QM) Electronic
• Le Champ (South East Asia) Pte Ltd
• My Own Produktentwicklung & Vertriebs GmbH
• Permanent Magnets Limited
• Prodigy Electronics Limited
• Supreme Components International Pte. Ltd
• SPEL Semiconductor Limited
Syrma SGS has the highest number of suppliers amongst its Syrma gets benefit of supplier diversification in terms of
peers. payable days and with economies of scale it will further
improve its WC and margins.
No of Supplier
Payables Days
1800 1669
1600 160
138
1400 140
1200 120
94
100
1000 871
776 80 71
800 57
60
600
40
400
20
200
0
0 Kaynes Syrma SGS Ltd Avalon Cyient DLM
Kaynes Technologies Syrma SGS Ltd Cyient DLM Technologies Technologies
Ltd Ltd Ltd
Syrma can leverage its global sourcing

Perfect growth candidate capabilities to optimize its costs and for
lowering lead time to market.
By developing and strengthening its in-house capabilities and becoming an integrated
EMS solutions provider, Syrma will be able to reduce lead times, negotiate better credit We expect with Supplier diversification;
terms with its supplier, and capitalize on the market opportunities – all of which will Syrma is moving towards improving its
significantly drive revenue growth and margin expansion. supply chain efficiency

Product diversification + Product placement =

Profitable growth.
Syrma is one of the only four players in India that is not just into PCBA; its diversified
revenue streams provide a higher addressable market plus it has now been focusing
on entering into Industries which are offering higher margins.
Key Product Verticals of Syrma SGS Split of Segments for FY23

RFID &
Magnetics,
16%
Box Build ,
18%
PCBA, 66%

• PCBA: It can manufacture various types of PCBs, ranging from flexible PCBs to 28-
layer ones. The Printed Circuit Board (PCB) assembly process includes solder-paste
stencilling, pick-and-place components mounting, soldering, inspection, and post-
assembly inspection and testing. PCBAs are used in products manufactured for
automotive, medical, IT, and consumer industries. These include head and tail
lamps, fuel dispensing controllers, Electric Vehicle Battery Control Units (EV-BCU),
Engine Control Units (ECU), LED display modules, and in other applications in cars,
tractors, computers and laptops, telecom etc.
Syrma has c.61% of its revenue from PCBA segment

RFID and magnetic was c.16% of the
• RFID: Syrma’s RFID (Radio Frequency Identification) tags are used in shipping, overall revenue as of FY23 and the
healthcare, manufacturing, retail and fintech industries. It has applications such as margins are higher in RFID by 200-
pet and livestock tracking, inventory management, asset tracking, inventory 250bps compared to overall EBITDA.
control, vehicle tracking, cargo and supply chain logistics etc. We expect due to RFID Syrma will
• Electromagnetic parts: Syrma manufactures components like chokes, magnetic have an edge over competitors also
filters, transformers as well as high volume manufacturing assemblies all of which with this segment growing; we expect
have applications in automotive, industrial, consumer and healthcare. margin to improve going ahead.

• Others: It also manufactures other products such as motherboards, DRAM

(Dynamic Random-Access Memory) modules, SSD (Solid State Drive) and USB
(Universal Serial Bus) drives used in computers, laptops, video games and data
storage devices.
RFID-Application in livestock tracking, inventory control, etc Electromagnetic parts- Application in power supply, Chargers,
etc
Its product mix is customised towards higher-margin lower volume products (high mix) – which help the company in de-risking
volumes and improving margins
Syrma added IT & Railways to its portfolio; Both the segments Since Syrma operates across the sunrise industries; we
has significant opportunity of growth ahead. expect its order book to grow at a CAGR of c.47% over FY23-
25. We expect most of the growth to come from segments
Automotive Consumer Healthcare IT Railways Industrial
like railways, automobile (especially EV), industrials and
1.2 consumers.
Order book (Rs Mn)
1
38.5% 31.4% 70000 64,649
0.8
1.8% 60000
% of sales
47,384
0.6 7.0% 50000
8.0%
24.0% 40000
30,000
0.4 30000
32.2%
20.4% 20000
0.2 12,000
19.7% 10000
17.1%
0 0

1. Automotive electronics – riding on EVs: 20% of Syrma’s sales
India’s automotive industry is evolving rapidly with new technologies and shift to EVs. Key Products: Charging
Automakers are creating separate EV businesses in anticipation of the EV boom in Infrastructure, Batteries, Display
India. The country is expected to aggressively push toward electrification, especially in Controllers, etc.
transportation. OEMs can partner with charging infrastructure operators, aggregators, Key Customer: TVS motors.
and manufacturers to set up networks for normal and fast chargers across the country.
The electronics content in a combustion two-wheeler is Rs 2,000 per vehicle while Order Book FY23: Rs 5,901Mn
this figure would be Rs 15,000-20,000 for an EV two-wheeler. Corresponding figures Revenue CAGR FY19-23: 31%
for combustion/EV 4-wheelers would be Rs 5,000-6,000/Rs 60,000-70,000.
Gross Margins FY23: 22.1%
Regulatory norms, comfort, and personalization are the three key trends in the Indian Growth drivers: Government
automotive sector, which are likely to have a significant impact on the electronics incentives to reduce carbon
industry in India. Electronics for vehicles such as body electronics, safety, and emissions, rising income levels,
entertainment and driver assistance are all contributing to the fast expansion of the etc
automotive electronics industry.
Automotive industry CAGR of 30% (FY23-27) Growth of EVs in India – CAGR of 43% over FY21-26
Automotive (Rs Bn) 25 23
300 18.8
20
240
250
15
200 180
11.7
140
150
in Rs bn
10
109 7.5
100 85
66 5.2
48 5 3.8 3.9
40
50
0 0
FY20 FY21 FY22 FY23 FY24 FY25 FY26 FY27 FY20 FY21 FY22 FY23 FY24 FY25 FY26
For Syrma, Automotive segment currently has an order book of Rs c. Rs 5.9bn. We

expect revenues of Rs 6.0/8.5bn in FY24/25 largely because of customer addition in
two-wheeler EVs and some share from 4-wheeler EVs, which will lead to margin
expansion (EVs earn better margins).
Automotive: revenue CAGR of 46% over the next two years, Order book continues to provide revenue visibility; we
with GM of 22%/22.3% in FY24/25 expect order inflow of Rs 9.8/14.3bn in FY24/25
Automotive GM (%) Order book - Automotive
9000 25% 16000
22.1% 22.0% 22.3% 14327
8000 20.4% 8558 14000
18.4% 20%
7000 12000
15.5% 9885
6000
6016 15% 10000
12.5%
in Rs mn
in Rs mn
5000
8000
4000 5901
4029 10% 6000
3000
2000 4000
2515 5%
1000 2000
1358 1332 1303
0 0% 0
FY19 FY20 FY21 FY22 FY23 FY24E FY25E FY23 FY24E FY25E
Source: PC estimates, PhillipCapital India Research, Company Data Source: PC estimates, PhillipCapital India Research, Company Data

Syrma’s largest Customer in EV (TVS Motors) - has significantly increased its market
share in 2-wheeler segment. We expect with this Syrma continue to see strong order
book from TVS.
TVS - 2 Wheeler EV Sales Market Share
90000 81,944 16% TVS is a major customer for Syrma, and

has shown exponential growth in two-
80000 14%
wheeler EVs.
70000 12%
11%
No of units Sold
60000 TVS’s EV 2-wheeler volumes sold saw a

10%
50000 CAGR of 408% over FY21-23 and it has
8% increased its market share to 11% from
40000
6% 1% in FY21
30000
20000 4% 4%
9,697
10000 2%
624 1%
0 0%
FY21 FY22 FY23
Product Offering under the Automotive & EV Segment
2. Consumer electronics: 32% of Syrma’s sales; focusing on low penetrated Key Products: Water purifier,
segments BLDC, 5 G Devices, RFID’s, Smart
consumer electronics
Demand for consumer appliances has been growing strongly, backed by a rising middle
class and income levels, increasing urbanization, and changing lifestyles. Low Key Customer: Eureka Forbes, AO
penetration levels of most consumer electronics and appliances categories leaves huge Smith, Bosch, HUL, Fastag, etc.
headroom for the industry to grow – more so in large semi-urban and rural markets of Order Book FY23: Rs 9,662Mn
India. Emerging technologies have paved the way for devices such as smart watches
and smartphones. The advent of IoT and AI opens a wide array of possibilities. RACs, Revenue CAGR FY19-23: 42%
water purifier, etc have very strong growth potential ahead due to low penetration. Gross Margins FY23: 17.1%
Syrma’s consumer business consists of fibre-to-home products, wi-fi, wireless, ONT, G-
PONS, water and air purification systems, water heating systems and smart electronics Growth drivers: Lower
like wearables etc. We expect water purifiers to be a major contributor for this segment penetration of electronics
over the next 2-3 years along with IT products, controllers, hearables and wearables. products, increasing disposable
incomes, etc.

Consumer: Market size to increase to Rs 182bn by FY26 Penetration levels of key consumer appliances
35% 33%
200 Consumer 182
30% Major focus
152 25%
150 20%
127
15% 12%
106 10%
in Rs bn
100 89 10% 6% 5%
73 5%
62
0%
50
0
Consumer electronics – how the opportunity landscape looks

• We expect Syrma to capitalize on this opportunity through its long-standing Electronic content in a BLDC fan is Rs
relationships with consumer appliances industry leaders and based on its proven 350-450 vs. 0% in a conventional fan
capabilities.
Smart meters have electronic content of
• We see revenues of Rs 10.1/14.6bn for this segment in FY24/25 with material
3-5x compared to a normal energy
margins of 17.3%/17.4%. meter
• Due to large volumes, margins are generally lower but company generates better
asset turns. Currently, this segment has an order book of Rs 9.6bn.
Backward Integration will help to
Margins will rise on back of backward integration + higher value addition + operating increase margins for the traditionally
leverage. lower-margin consumer segment
The government’s rising focus on localization of consumer electronics will lead to more
backward integration happening, which the management expects will lead to margins This segment sees better ROCE due to
rising because of higher value addition. We expect long-term improvement in margins its low investment needs
in the consumer segment led by higher backward integration, increasing penetration
levels (which will result in higher volumes), and operating leverage kicking in.
We expect revenue CAGR of c. 47% from FY23-25; we are not Order book to ramp up as wallet share with existing
factoring much benefit of value added+ customers addition + new customers + low penetration
Consumer levels
We are not factoring
GM (%) benefit of backward Order book - Consumer
16000 integration + value 60.0%
14160
14000 addition and 25000
operating leverage 50.0% 20569
12000 53.0%
10133 20000
40.0%
10000 15529
41.9%
in Rs mn
41.7%
in Rs. mn
38.1% 15000
8000 6597 30.0%
9662
6000 10000
20.0%
4000 2577
1621 1945 2085 17.1% 17.3% 17.4% 10.0% 5000
2000
0 0.0% 0
Source: PC estimates, PhillipCapital India Research, Company Data Source: PC estimates, PhillipCapital India Research, Company Data

Product Offering under the Consumer Segment
3. Industrial electronics, 31% of revenue: Tech boost, Make-in-India, PLI

• Tech upgradation, digitization to push industrial electronics demand: Most large
manufacturing companies are investing heavily in technology upgradation and Key Products: Solar controllers,
digitization, which should push up demand for industrial electronics – this will Power suppliers, RFID, smart
boost the ESDM industry. energy meters, etc, Smart cities.
• Make-in-India, PLI: The Make-in-India initiative is curated to empower the Key Customer: Total Power
manufacturing sector, boosting essential industries such as power, metals and Europe, Phoenix contact, Cyan
minerals, chemicals. The manufacturing industry in India has the potential to reach Connode.
USD 1tn by FY25. Expansion of PLI schemes to various sectors, development of a
component ecosystem, setting up of semiconductors in India will all drive growth Order Book FY23: Rs 9,406Mn
for this segment. Revenue CAGR FY19-23: 20%
• Strong growth for industrial EDSM: Industry estimates predicts industrial ESDM
CAGR at 22% up to FY26 to reach Rs 120bn in revenues from Rs 45bn at present. Gross Margins FY23: 29.9%
For Syrma, we expect revenues of Rs 8.6/11.3bn for this segment with material Growth drivers: Increase in
margins of 30/31% in FY24/25. Industrial will continue to be a significant part of infrastructure spends, private
the revenues due to good order visibility from clients. capex, green energy, etc
• Industry is in now shifting towards smart meters from conventional meters which
will lead to strong growth in this segment.
• Exports: This segment currently earns 56% of its revenue from exports. We expect
the exports opportunity to increase.
• In this segment, we expect order inflow growth of 47% over the next two years,
which will result in a revenue CAGR of 33% in this period.
Industrials to see revenue CAGR of 33% over FY23-25 Order book momentum to continue
Industrial GM (%) Order book - Indutrial
12000 35% 11359 36% 25000

35% 20193
10000
8653 34% 20000
8000 32% 33% 14752

6422 15000
in Rs mn
in Rs mn
31% 32%
6000 31% 31%
4412 30% 31% 9406
3929 30% 10000
4000 3060 3288 30%
29% 5000
2000
28%
0 27% 0

Product Offering under the Industrial Segment
4. Healthcare, 8% of revenue: EMS market for medical devices to drive

Key Products: Healthcare devices,
growth Digital X-rays, High Precision
• The EMS market for medical devices is expected to grow very fast – 43% CAGR to dispensers, etc
reach Rs 90bn by FY26 from Rs 15bn in FY21.
• India’s medical device industry is populated by large multinationals and small and Key Customer: Phillips
medium businesses (SMEs), and it is expanding at an unprecedented rate. Around Order Book FY23: Rs 1,633Mn
65% of Indian manufacturers in this sector are domestic companies in the
consumables sector, and they mainly cater to domestic consumption (limited Revenue CAGR FY19-23: NA
exports). Gross Margins FY23: 53.9%
• Major medical electronics include MRI, X-Ray, ultrasounds, etc. and ‘patient aids’
include hearing aids and pacemakers, etc. Growth drivers: Development of
• Syrma’s management expects strong rebound in demand for the healthcare Medical Infrastructure
segment from Q3FY24.
• We expect revenues of Rs 1.6/2.2bn for this segment for Syrma, with material
margins of 54% for both FY24-25.
• This segment is majorly into exports (c.96% of its revenue). We expect its exports
visibility to improve from the second half of FY24, after which its share will rise
even more.
We expect Healthcare to grow at a CAGR of c.17% over FY23- Medical electronics CAGR of 41% over FY23-27
25
Medical (Rs bn)
Healthcare GM (%)
140
125
2500 54% 54% 2241 60%
120
2067 49%
1905 54% 50% 94
2000 100
39% 37% 1619 1633 1674
40%
80
1500 66
in Rs mn
29% 1244
30% 60
46
1000
20% 40 32
23
500 14 16
10% 20
0 0% 0
FY19 FY20 FY21 FY22 FY23 FY24E FY25E FY20 FY21 FY22 FY23 FY24 FY25 FY26 FY27

Product Offering under the Healthcare Segment
5. IT, 7% of revenue: IoT drives growth; focus on manufacturing/smart cities

• With government approval on IT
• IoT will play a crucial role in India’s development as a manufacturing hub.
hardware Policy 2.0; we expect this
• Industrial sectors such as health sciences, energy, and core manufacturing will segment to see strong order book going
leverage IoT for applications such as supply-chain monitoring and asset ahead.
maintenance to accelerate IoT adoption. • With an outlay of Rs 170bn, this policy
• GoI’s emphasis on Smart Cities will generate massive opportunities for IoT-related will attract big global IT hardware
capex in areas such as public safety, traffic control, and energy management. IoT manufacturers to shift their
will also be used in home automation, manufacturing, and other sectors such as production base to India and thus give
healthcare. a boost to local production
• The GoI has developed multiple policies to increase IoT adoption such as the Draft
IoT policy 2015, National Digital Communications Policy 2018, Smart Cities Mission
2015, and IoT Centre of excellence by NASSCOM, MeitY, and ERNET.
• We expect Syrma’s revenues from this segment at Rs 1.6/2.2bn with material
margins of 8.0% in both FY24 and FY25.
IT segment to see a CAGR of c.25% over FY23-25; We expect Syrma’s order book to grow at a CAGR of c.38% over FY23-
with IT hardware policy the growth in this segment can be 25
much bigger.
Order book - IT
IT GM (%)
4500
3979
2500 2245 12% 4000
10% 3500 3119

2000 10%
1669 3000
8% 8%
1426 8% 8% 8%
in Rs mn
1500 1296 2500

in Rs mn
2089
6% 2000
1000
1500
4%
3% 1000
500
205 2%
500
3 15 1%
0 0% 0

6. Railways, 1.8% of revenue: ESDM, electronics integration, private

participation drive growth;
• Syrma has received the Research Designs and Standards Organization (RDSO)
approval for its railways segment. As a result, management expects significant Kyosan is the key client in this
increase in contribution of railways to overall revenues in the coming quarters. segment and its revenue in FY22
• The railways industry uses electronics in a major way in safety-related system, for was c.Rs 42bn
safe communication, and processing systems. Railways signalling systems now use In FY22, export contributed 94% of
electronics components without asymmetric faults and unsafe communication this segment’s revenue. We expect
channels. this mix to change due to increasing
• The Railways ESDM segment should see a substantial 46% CAGR – to Rs 35bn in opportunities in domestic market.
FY26 from Rs 5bn in FY21.
• Growth in this segment will be driven by increasing private-sector participation,
government focus on infrastructure, rising demand for urban mass transportation, We see significant order inflow growth
improved safety and modernization and growth of freight traffic due to of 71% over the next two years,
resulting in high revenue CAGR of 111%
industrialization.
because of more domestic business and
• We expect Syrma’s revenues in this segment at Rs 1.1/1.6bn with gross margins at lower base
17%/17.5% for FY24/25 respectively. Revenue growth will largely be due to rising
share and traction of the domestic market.
Railways segment will see CAGR of c. 111% over FY23-25 Order book will see CAGR of c. 71% over FY23-25
Railways GM (%) Order book - Railways
1800 1676 30% 1800

1604
1600 1600
25% 25%
1400 1400
1170
1200 20% 20% 1200
in Rs mn
18%
in Rs mn
1000 17% 17% 1000 880

16% 15%
800 800
600 10% 551
376 600
400 247 400
109 5%
200 9 200
0 0%
0
FY20 FY21 FY22 FY23E FY24E FY25E
FY23 FY24E FY25E
Product offerings under IT & Railway. We expect with IT hardware policy and Railway electrification; Syrma to add more
products in this segment going ahead.

Expansion of end-user industry base

Syrma intends to diversify into new industry verticals to capture fresh opportunities
and also to hedge its business operations from a downturn in any one industry vertical.
Some of the industries it has identified are:
➢ Aerospace and defence: The government has been focused on reducing India’s
import dependence in this segment, and developing the A&D capital-equipment
base. The indigenous manufacturing base, which was primarily built around PSUs
in the past, is now seeing private players setting up meaningfully sized and
proficient facilities. Electronics has paramount importance in the Indian aerospace
and defence industrial plan, which Syrma can readily capitalize on.
➢ Lighting: Many companies in the LED lighting industry outsource manufacturing
to EMS players, and this trend is growing. Industry estimates expect the
contribution from EMS in total manufacturing to rise exponentially to Rs 344bn in
FY26 from Rs 47bn in FY21. Energy Efficiency Services Limited (EESL) initiatives,
such as Unnat Jyoti by Affordable LEDs for All (UJALA) and Street Light National
Program (SLNP) increase the volume demand, allowing companies to have pricing
leverage with component suppliers, leading to a drastic fall in product costs. Street
lighting should see significant traction in the coming years.
Syrma will find it easy to enter new industries because of its existing manufacturing Syrma's position as one of the largest
capabilities, dedicated R&D infrastructure, and wide customer base. New industry listed player in electronics
verticals will open up opportunities which will provide greater order visibility and allow manufacturing solutions in India makes
it to significantly scale up its operations. Being the largest player in electronics it best-placed to capitalize on
manufacturing solutions in India in terms of revenues and scale, we believe Syrma will incremental opportunities in new
easily capitalize on incremental opportunities. industry verticals
Inorganic growth through strategic acquisitions

In the past, Syrma has acquired many companies to strengthen its presence in the EMS
segment – such as its acquisition of Tovya Automation in December 2014, merger of
3G Communication from April 2016, and most recently, SGS Tekniks in September 2021
and Perfect ID in October 2021. These acquisitions have provided Syrma with access to
technical know-how and helped it to optimize its manufacturing network. It also helped
in more effective component purchasing, which makes up a majority of the cost of raw
materials. Syrma will continue to pursue inorganic growth to:
• Enhance scale and market position
• Strengthen the product range and customer base and diversification into new
geographies
• Product innovation to capture incremental revenue opportunities from existing
customer base
Acquisitions, diversification, and value-added offerings will drive growth

• Acquisitions: Syrma will benefit from various cost and revenue synergies by
acquiring and merging with companies in the same or similar sector as it operates
in.
• Diversification: Acquisitions strategy will allow it to diversify into new products,
geographies, and to grow its clientele. This will help it to maintain its market
leadership.
• Value-added offerings: Greater focus on value-added offerings will provide Syrma
with the necessary thrust for expanding its margins.

Financial story in charts

Syrma will see revenue CAGR of c. 40% from FY23-25 due to We expect some gross margins pressure in the short-term
strong growth in segments like railway, consumer, due to high share of the consumer segment. However, with
automotive and industrials more focus on box builds, increasing volumes in consumer
segment, backward integration and increasing share of high
Revenue
margin line. GM will expansion over 2-3years.
45000 40,240
CAGR of Gross margin
40000 40%
35000 35%
29,316 32.6%
30000 30% 29.6%
CAGR of
in Rs mn
25000 52% 25%

20,484
20000 20%
24.8% 23.6%
15000 12,666 15% 23.6%
8,874
10000 10%
5000 5%
0 0%
FY21 FY22 FY23 FY24E FY25E FY21 FY22 FY23 FY24E FY25E
With assets reaching a more optimum level of utilization, We expect significant jump in profitability led by higher
operating leverage that will kick in will be very positive volumes, better product mix and focus on debt reduction.
EBITDA OPM (%) PAT PATM (%)
4500 12.0% 3000 2737 8.0%

11.3% 3823 7.4%
4000
9.9% 10.0% 2500 6.8%7.0%
3500 9.2% 9.5% 6.3%
9.1% 6.0% 6.0% 6.0%
3000 2655 8.0% 2000 1856
5.0%
in Rs mn
in Rs mn
2500
1878 6.0% 1500 1231 4.0%
2000
1260 3.0%
1500 4.0% 1000 765
999 655
1000 2.0%
2.0% 500
500 1.0%
0 0.0% 0 0.0%
FY21 FY22 FY23 FY24E FY25E FY21 FY22 FY23 FY24E FY25E
DuPont analysis
Du Pont analysis FY20 FY21 FY22 FY23 FY24E FY25E
Asset turnover (x) 1.49 1.38 1.60 1.08 1.34 1.67
RoE (%) 22.36 12.07 12.47 7.87 10.62 13.53
As seen in Dupont analysis; the improvement in ROE will be mainly backed by the
higher growth in profits and increasing asset t/o ratio. Net profit margin will improve
to 7.8% from current 6.3%, asset turnover ratio will increase to 1.3 from current 1.7,
and leverage multiplier will decrease to 1.19 from present 1.22.

Strong profitability and debt reduction will improve RoE and With strong profitability and working capital improvement
RoCE going ahead. will help to generate positive cash flows.
RoE RoCE CFO
18 16.4 1200 1,035 1,033

16 14.6 1000
15.0 12.7
14 13.7 800
13.1
12 10.5 600
10.7 371
10 12.1 400
in Rs mn
8 8.0 200
6 0
4 -200 FY21 FY22 FY23 FY24E FY25E
2 -400
(126)
0 -600
FY21 FY22 FY23 FY24E FY25E -800 (703)
We see some more reduction in working capital, but big improvement will happen
when the component ecosystem in India sees significant development
Debtor days Inventory days Creditor days
120
103 100
94 95 97 95
100
85 87
83
77 76
80 73
number of days
71 70 69
60
40
20
0
FY21 FY22 FY23 FY24E FY25E
Capacity expansion will lead to increase the overall gross Capacity expansion will be a positive move for revenue
block. improvement for Syrma.
Gross block CAPEX 5
4.4
4.5
10000 9,188
8,488 4
9000 3.5
3.5 3.2
8000
2.8
7000 6,304 3
2.4 2.4
6000 2.5
in Rs mn
5000 4,464
3,726 2
4000 3,538
1.5
3000
1
2000
1000 0.5
0 0
FY20 FY21 FY22 FY23 FY24E FY25E FY20 FY21 FY22 FY23 FY24E FY25E

Debt repayment will improve the Debt/Equity ratio. Syrma to generate free cash flow from FY25.
Debt: Equity Net debt: Equity FCF to PAT
0.35 0.5
0.33
0.3
0
0.27 FY21 FY22 FY23 FY24E FY25E
0.25 0.26
0.22 0.22 -0.5
0.2 0.20
0.19
0.17 0.16 -1
0.15
0.1 -1.5
0.05 -2
0.04
0
FY21 FY22 FY23 FY24E FY25E -2.5
Outlook & Valuation

We expect Syrma SGS to report revenue/EBITDA/PAT CAGR of 40%/43%/49% over
FY23-25 mainly backed by:
(1) Strong order book of 1.5x of FY23 revenue,

(2) Increasing customer base with rising wallet share from existing customers,
(3) focus on technologies and innovation to increase product offerings,
(4) entry into new business verticals (aerospace & defence, medical) which will improve
strong order book visibility,
(5) highest capacity in the industry; new capacity addition will give it an edge over
peers,
(6) favourable industry tailwinds
(7) Economies of scale and robust supplier network will help Syrma to improve its
sourcing which will benefit it in improving working capital and profitability.
Syrma will see FY24/25 earnings growth of c.51%/47%; based on strong earning
CAGR, improving returns ratios, and improved working capital visibility, we value the
company at 40x its FY25 EPS (trades at 31x FY25 EPS at CMP). Initiate coverage with
a Buy rating and target of Rs 619.

Company overview
Company background and operations
• Founded in 1978 by the Tandon family in San Jose and Chennai for developing
quality technology products.
• It is one of India’s largest exporters of electronics, providing high-value integrated
design and product solutions for OEMs.
• Syrma SGS’s business model starts from product concept design and focuses on
every segment of the overall industry value chain. It is a leader in high-margin low-
volume product management, and is present in most industry verticals.
• It operates in consumer electronics and appliances, telecommunications,
automotive and industrial segments and is planning to diversify into aerospace and
defence, which at present contribute to less than 2% of its overall revenue.
Manufacturing facilities
Syrma has 11 manufacturing facilities in 5 states – Tamil Nadu, Karnataka, Himachal
Pradesh, Haryana and Uttar Pradesh.
• Tamil Nadu facility is inside an SEZ.
• Haryana facility is under the Electronics Hardware Technology Park Scheme, which
allows it to avail certain tax and other benefits.
Syrma has manufacturing presence in north and south India
Industry recognition, growth prospects

o It is growing through consolidation and partnerships.
o It is recognized in the industry for responsiveness and being a reliable partner on
the Net Promoter Score (NPS) score.

Portfolio, segments:
o RFID and IoT are high-margin, high volume products
o Products in telecom, industrial, medical, and magnetic segments are high-margin
low-volume products.
o IT and automotive are low-margin, low-volume products.
o Lighting, consumer, and mobile phones are low-margin, high-volume products.
Key strengths
• Manufacturing facilities in Tamil Nadu are placed in SEZs, allowing them to take
advantage of specific tax and other incentives.
• All facilities are certified, including ISO 14001 and 9001. Key focus on women
empowerment – more than 80% of employees are women.
• First in India to manufacture RFID products and continues to be the market leader.
Also, a leader in memory modules.
• Long-standing relationships with customers – an opportunity for increased wallet
share and not a single customer is more than 5% of overall business.
Solutions for OEMs, agreements

Syrma SGS offers high-value-added and integrated design and manufacturing solutions
for internationally recognized OEMs. It is closely involved in value engineering, tool
engineering, mould development, test set-up conceptualization, and development. It
enters into framework agreements with customers that outline the roles and
responsibilities of both parties. It details modalities for compensating foreign
exchange, abnormal variation in commodity prices, etc.
Key products
• IT: motherboards, memory modules, hard disks, SSD, flash drives
• Automotive: head and tall lamps, cluster, fuel dispensing controller, EV – BCU,
ECU, BMS
• Consumer: AC, BLDC fan, controller boards, water purifier, mixer grinder,
washing systems
• Telecom: controller boards, power supply boards, relay boards, modem boards
• Railways: CPU board, DO Generic, WBI boards, electronic interlocking systems
• Power: motherboards, LED display modules
• Medical: X Ray controllers, WBI boards, glaucoma detection, smart cane, CPAP
devices
• Defence: Processor module, radar target tracker
Raw material and suppliers

• Electronic components (micro controllers, ICs, resistors, capacitors, LED, PCB and
other semiconductors) – These kinds of components are directly procured through
manufacturers in foreign countries or authorized distributors in foreign markets.
• Wound components – Wound components or magnetic components are either
manufactured in-house or sourced from local vendors.
• Wiring harness – These products are imperative for long-term quality, they are
manufactured in-house for export related products, while the products supplied to
domestic customers are sourced from local vendors.
• Plastic parts – These are produced by companies having plastic moulding
capabilities. The specifications are provided by Syrma and the moulds are also
owned by Syrma.
• Sheet metal parts – They are made based on drawings and tools which are owned
by the company.
• Process consumables – Sourced from various third-party manufacturers.

Experienced/diversified board will drive successes

Strong team - experienced board with prominent independent directors
Name Designation Joining Date
Sandeep Tandon Executive Chairman 29-Dec-04
Jasbir Singh Gujral Managing Director 27-Sep-21
Jaideep Tandon Non-Executive Director 9-Nov-20
Jayesh Doshi Non-Executive Director 27-Sep-21
Sridhar Narayan Non-Executive Director 4-Nov-20
Kunal Shah Independent Director 29-Nov-21
Anil Nair Independent Director 29-Nov-21
Hetal Gandhi Independent Director 29-Nov-21
Smita Jatia Independent Director 29-Nov-21
Bharat Anand Independent Director 29-Nov-21
R Nagaraj Operation Head
N.G. Sreedharan Design/ R&D Head
Source: DRHP, Syrma SGS Presentation, PhillipCapital India Research
Key managerial personnel – Strong background and experience in this industry
Name Designation Education Experience

Mr. Sandeep Executive • Bachelor of Science in • 18+ years of experience in the EMS space
Tandon Chairman electrical engineering from • Previously with Celetronix Inc., USA
University of South Carolina • Board member at CRED, Chairman of the Board at Aavas
• YPO President's Program from Financiers and member of the Board of Advisors at IIFL
the Harvard Business School Investment Managers
Mr. Jasbir Managing • Bachelor of Commerce from • 39+ years of experience in the EMS space
Singh Gujral Director University of Delhi • Fellow member of the ICAI
Mr. Sreeram Chief Executive • B. Tech in metallurgical • 20+ years of experience in business operations
Srinivasan Officer engineering from IIT Madras • Looks after operations and business strategy.
• MS and PhD from North • Previously VP (Operations) of Rane Engine Valves for 4 years
Carolina State University • President and ED of Shanti gears for 3 years
• MD of Saint Gobain Sekurit India for 7 years
• CEO of MTAR technologies
• He is on the Board of IESA (Indian Semiconductor and
Electronics Association)
Mr. Bijay Chief Financial • Bachelor of Commerce from • 16+ years of experience in finance, banking, treasury, M&As,
Kumar Officer P.N. College, Khurda, Utkal IPOs, PE, fund raising and business strategy
Agrawal University • Previously associated with Manpower Services India, Dalmia
• MBA from the ICFAI University. Bharat and Omax Autos
Source: DRHP, Syrma SGS Presentation, PhillipCapital India

Financials
Net sales 12,666 20,484 29,316 40,240 Pre-tax profit 1,108 1,787 2,509 3,700
Other operating income - - - - Chg in working capital (1,212) (2,140) (968) (1,829)
Employee expenses 750 1,060 1,466 1,906 Cash flow from operating activities (126) (703) 1,035 1,033
Other Operating expenses 1,735 2,142 2,785 3,783 Capital expenditure (901) (1,839) (2,185) (700)
EBITDA (Core) 1,260 1,878 2,655 3,823 Chg in investments - 0 0 (1)
Margin, % 9.9 9.2 9.1 9.5 Cash flow from investing activities (3,992) (9,145) (1,685) (201)
Depreciation 249 312 368 377 Free cash flow (4,063) (9,699) (444) 1,015
EBIT 1,010 1,566 2,287 3,447 Equity raised/(repaid) 2,715 7,660 - -
Growth, % 30.9 55.0 46.1 50.7 Debt raised/(repaid) 1,021 1,526 1,000 (500)
Interest paid 80 216 278 247 Cash flow from financing activities 3,821 9,967 722 (747)
Other Income 177 437 500 500 Net chg in cash (296) 120 72 85
Pre tax profit 1,108 1,787 2,509 3,700
Tax provided 343 556 652 962
Profit after tax 765 1,231 1,856 2,737
Valuation Ratios
Minorities/JV shares 0 0 0 (1) FY22 FY23 FY24E FY25E
Net Profit 765 1,231 1,856 2,737 Per Share data
Growth, % 16.7 61.0 50.8 47.4 EPS (INR) 4.3 7.0 10.5 15.5
Net Profit (adjusted) 765 1,231 1,856 2,737 Growth, % 16.7 60.4 50.8 47.4
CEPS (INR) 5.8 8.7 12.6 17.6
CFPS (INR) (0.7) (4.0) 5.9 5.8
Cash & bank 369 544 616 701 Return ratios
Loans & advances 369 7,523 7,523 7,523 ROIC (%) 13.0 11.4 12.7 16.3
Other current assets 571 1,020 1,020 1,020
Investments 410 840 840 840 Asset turnover (x) 3.0 3.7 4.0 5.2
Less: Depreciation (668) (980) (1,347) (1,724) Working capital/Sales (x) 3.8 1.6 2.1 2.6

Non - current liabilities 2,066 3,606 4,606 4,106 Interest cover (x) 12.7 7.3 8.2 14.0
Paid - up capital 1,376 1,768 1,768 1,768 Net debt/Equity (x) 0.3 0.2 0.2 0.2
Reserves & surplus 4,344 13,635 15,491 18,228
Minorities 108 26 26 26 Valuation
Shareholders’ equity 5,829 15,429 17,285 20,022 PER (x) 109.5 68.2 45.2 30.7
Total equity & liabilities 11,542 25,412 31,237 36,357 PEG (x) yoy growth 6.6 1.1 0.9 0.6
Price/Book (x) 14.7 5.5 4.9 4.2
EV/Net sales (x) 0.2 0.2 0.2 0.1
EV/EBITDA (x) 1.6 1.9 1.7 1.1
EV/EBIT (x) 84.7 55.5 38.4 25.3

Avalon Technologies Ltd (AVALON IN)

Diverse reach, box-build expertise, clean-energy niche
19 July 2023
Avalon is a fully integrated leading EMS player in India with proficiency in delivering box-
build solutions and a focus on high-value precision engineered products. It provides
BUY
comprehensive solutions to OEMs in India, USA, China, Netherlands, and Japan. Its CMP RS 655
capabilities range from PCB design and assembly to manufacturing of complete electronic TARGET RS 920 (+40%)
systems and it caters to diverse industries from industrials to digital infrastructure. It has SEBI CATEGORY: MID CAP
an order book of Rs 12.3bn as of FY23, which is executable in 12-15 months. We expect
revenue/EBITDA/PAT CAGR of 32%/38%/66% over the next two years. COMPANY DATA
Why do we like Avalon? MARKET CAP (RSBN) : 43
• High share of exports, now building a strong domestic order book: c.59% of its revenue MARKET CAP (USDBN) : 0.5
comes from the US, but it has started seeing strong orders from India as well. Its domestic 52 - WK HI/LO (RS) : 732 / 347
order book CAGR was c.35% over FY20-23; Industrial and mobility segment (without PAR VALUE (RS) : 2
aerospace) will further drive domestic growth.
• Clean energy a niche for Avalon along with focus on other industries: Its clean-energy SHARE HOLDING PATTERN, %
Jun 23 Mar 23
revenue share increased to 25% in FY23 from c.12% in FY19 and we expects CAGR of
PROMOTERS : 51.2 70.7
c.37% in the next two years, since that industry’s CAGR is likely to be 87% over FY22-26. DII : 20.2 0.0
Avalon also focuses on industrial and mobility segments. It recently won new business FII : 8.9 0.0
from one of the world’s largest aerospace conglomerates, including a factory-transfer OTHERS : 19.7 29.3
project to India, which will improve its aerospace segment revenue potential. Its
PRICE PERFORMANCE, %
aerospace segment should see a CAGR of 38% over FY22-26. 1MTH 3MTH 1YR
• High share of box-builds provides better margin strength than peers: Box-builds ABS 30.9 60.8 NA
contributes c.47% of its revenue – highest in the industry. Due to this, Avalon’s gross REL TO BSE 24.7 48.2 NA
margins are higher than peers. It is now focusing on vertical integration, which will aid
margin expansion. The benefit of effective cost management and operating leverage will PRICE VS SENSEX
reflect at EBITDA levels. We expect EBITDA margin to improve by 110bps over FY23-25. 200
• Established relationships with a marquee customer base: Avalon has 80+ customers;
180
the average client relationships is eight years old among its top-80% revenue
160
contributors. It is also focused on customer acquisition to reduce revenue concentration.
• Strong customer stickiness due to leadership in high-margin, flexible-volume 140
manufacturing: Avalon has invested time in customer acquisition, prototyping, OEM 120
approvals, and production. Given the long lead times and high criticality of products, 100
Apr-23 May-23 Jun-23
entry barriers are high, providing good potential to increase wallet share with existing
AVALON IN BSE Sensex
customers via up-selling and cross-selling. Long product life + higher mix =Customer
stickiness + higher margin.
KEY FINANCIALS
• Advanced manufacturing and assembly capabilities with major focus on quality: The Rs mn FY23 FY24E FY25E
Indo-US manufacturing footprint gives its customers the flexibility to buy directly from Net Sales 9,447 12,252 16,477
India or the US, or a blend of the two. All of Avalon’s facilities are equipped with modern EBITDA 1,128 1,570 2,148
and high-technology equipment helping it to cater diversified industry. Net Profit 525 960 1,440
Outlook and valuation: Over the next 2-3 years, Avalon will see strong profitable growth led EPS, Rs 9.1 16.6 24.9
by: (1) Higher share of box builds among peers, plus developing ODM and vertical integration, PER, x 71.7 39.2 26.1
which will lead to stronger realisations and margins, (2) Long product life + higher mix EV/EBITDA, x 32.4 23.6 17.2
=Customer stickiness (3) increasing share of clean energy, where the industry itself is poised PBV, x 7.0 6.8 5.4
for 87% CAGR over FY22-26, (4) continuous focus on adding new customers in segments such ROE, % 9.8 17.4 20.7
as industrial, mobility, and aerospace, along with increasing wallet share among existing
customers, (5) strong domestic order book traction, along with growing exports business, (6) Deepak Agarwal, Research Analyst
Indo-US manufacturing footprint, which gives its customers the flexibility to buy directly from dagarwal@phillipcapital.in
India or the US, or a blend of the two, and (7) strong industry tailwinds. With all this, we
expect Avalon to see revenue/EBITDA/PAT CAGR of c.32%/38%/66% over FY23-25, with GM Bhavanishankar Kumawat, Research Associate
of 36% and OPM of 12.8%/13.0% in FY24/25. We see strong earnings growth of c.83%/50% in
FY24/FY25 respectively, improved ROCE/ROE of c.25.6%/20.7% in FY25, and better working Nikhil Kandoi, Research Associate
capital, based on which we value Avalon at 37x FY25 EPS (it trades at 26x a FY25 PE at CMP) nkandoi@phillipcapital.in
to arrive at a target of Rs 920. We initiate coverage on Avalon with a Buy rating.

AVALON TECHNOLOGIES LTD INITIATING COVERAGE
Diversified high-growth clients

Avalon caters to high growth industries such as clean energy, mobility, aerospace and
Avalon has a well-diversified high-
defence, railways, industrial, medical etc. Its diversified industry base offers comfort
growth industry base coupled with
from a downturn in any one industry vertical. The management is hopeful that it can strong clientele and customer stickiness
continue to reduce dependence on any one industry. All the industries it caters to are
expected to see strong growth in coming years, which provides the company with
significant order and revenue visibility in coming years.
Clean Energy, mobility and industrial segment will continue to be major contributor
in overall revenue
Clean Energy Mobility/Transportation Industrial Industry CAGR (FY22-26E)
50%
Communication Medical Others (Defense + Design)
40%
120% 42%
38%
2.6% 30%
100% 6.8% 6.1% 6.5%
10.8% 11.2% 8.7% 8.2%
7.8% 7.7% 6.4% 5.7% 6.1% 29%
8.1% 11.1% 12.2% 12.5% 20%
80% 6.3% 7.9% 7.2%
20.6%
19% 18%
60% 27.9% 29.3% 30.0% 29.3% 26.8% 25.1% 10%
26.6%
40% 22.2% 22.8% 0%
28.5% 26.6% 21.2%
30.8%
28.0%
20%
20.3% 25.3% 27.1% 27.0%
11.4% 15.7% 17.7%
0%
Avalon caters to all the “sunrise” sectors

Industry-wise revenue break-up (in Rs mn) FY20 FY21 FY22 FY23
Clean energy 1,026 1,234 1,727 2,363
as a % of revenues 16% 18% 20% 25%
Mobility 2,012 1,984 2,265 1,985
as a % of revenues 31% 29% 27% 21%
Industrial 1,823 2,043 2,558 2,741
as a % of revenues 28% 29% 30% 29%
Communication 409 547 611 1,040
as a % of revenues 6% 8% 7% 11%
Medical 527 545 656 595
Others 733 607 699 633
Total 6,532 6,959 8,517 9,356
Customer stickiness is high due to the nature of the business

It mostly undertakes high-margin flexible-volume manufacturing of products with a
long product lifecycle, which requires a lot of collaboration and technology transfer
with its clients. The product approval process – right from initial design, prototyping,
to OEM approval and mass production – is complex and long, which ensures customer
stickiness. Given the depth and nature of its engagement with longstanding customers,
it is not easy for its clients to switch to another EMS provider, because the cost, time
and effort for such transitions are high.

Solid client relationships, varied offerings, leading customers across industries

• Its product offerings and their varied applications have helped Avalon to develop
strong relationships with major clients and build a wide customer base across
many end-use industries. This is complemented by a strong client value-delivery
process, with strong focus on up-selling and cross-selling.
• Some of its marquee customers across its end-use industries include:
o Mobility industry: Kyosan India Private Limited, Faiveley Transport Rail
Technologies India Private Limited, a Wabtec Company, TransDigm
Technologies India Private Limited, Zonar Systems Inc., and Collins Aerospace
o Medical industry: Caire Inc
o Industrials: e-Infochips Private Limited and Haas Automation, Inc.
o Clean energy: TMEIC and Ohmium India Private Limited.
A diversified end-user industry base and a growing clientele

Number of customers FY20 FY21 FY22
Clean energy 4 6 11
Significant client addition in clean
Mobility 11 12 14
energy and industrial segment over
Industrial 26 30 38
FY20-22
Communication 5 6 8
Medical & Others 8 8 10
Total 54 62 81
Revenue split based on customer geography Widening customer base to aid future revenue growth, 35
new customers added in last 3 years.
USA India
100% 100
89
90 81
80% 80
number of customers
62% 59% 70 62
60% 60 54
50
40% 40
30
20% 38% 41% 20
10
0% 0
FY22 FY23 FY20 FY21 FY22 8MFY23
Top-5 and top-10 customers contribution to overall revenues

Top 5 customers Top 10 customers
70% 66% 65%

63%
60% 54%
49% 50%
50% 46%
37%
40%
30%
20%
10%
0%
FY20 FY21 FY22 8MFY23

Strong Indo-US manufacturing presence Order book has seen a good build-up over the last 3 years
with order book to bill at 1.3x in FY23
United States India
14000
12310
12000
10000 8579
28%
in Rs mn
8000
6346
6000 5047
4000
72%
2000
0
FY20 FY21 FY22 FY23
Order book split between India and USA

USA India
14000 CAGR (FY20-23)

USA: 35%
For Avalon, US business CAGR was
12000 35%, India 34% over FY20-23.
India: 34%
10000 Though contribution from exports
7376
in Rs mn
8000 was greater, we expect Avalon’s

6000 4875 domestic order book to see a similar
4000
3075 CAGR
3036
2000 4934
3271 3703
2010
0
FY20 FY21 FY22 FY23
Avalon EMS market – Product life cycle of end-user industries
Avalon is one of the leaders in the

high-margin, flexible-volume (high-
mix) product manufacturing
segment. It is present in virtually
every major industry vertical
Long product life cycle + higher mix =

customer stickiness + higher margin

Segments catered by Avalon includes; Avalon is expected to launch new products in H2 of FY24
Signaling and braking
system of railways
Signaling and
braking systems for Clean energy with presence
railways in solar, hydrogen and
electric vehicles industries
Products for defence

application Avalon’s varied
product applications
across many end
use industries Medical devices
Telecom, satellite systems

and digital infrastructure
Aircraft engine parts
1. Clean energy, 25% of rev: Capitalising on transition to EVs, hydrogen Management expects clean energy to
In the clean-energy segment, Avalon has made progress in signing letters of intent and make up a significant 27-28% of its
contracts with emerging industry players. But due to the high complexity, it takes 6-12 revenues over the next 2 years
months in delivering projects at a sizeable scale to new customers, so it will reflect in
revenues in FY24. Avalon has one export orders from global giants whose net worth is Some of its marquee customers here
over US$ 10-20bn. In this segment most of the revenue comes from export. include TMEIC and Ohmium India
Private Limited
Few products manufactured by Avalon under clean energy
Solar energy products basket Hydrogen related products basket
India has big renewable energy goals; Avalon to benefit

Globally, the energy sector is undergoing massive changes with the goal of making
clean energy a more dependable source. The clean energy sector includes RV, solar,
and hydrogen. Industry estimates peg the size at Rs 6bn in FY22 in India, with CAGR
seen at a high c.87% to reach Rs 76bn by FY26. Avalon had 14 customers in the clean
energy segment as of November 2022, including Ohmium India Private Limited. India

– a key participant in the Paris agreement – expects to generate a massive 175 GW

from renewable sources by the end of 2022, with solar energy accounting for 100 GW
of this. Its focus will be on high precision engineering and high-margin value products
with medium to long life cycles.
North America at the forefront of adoption green hydrogen technology

Green hydrogen is an ideal power source for energy-intensive industries such as
refining, steel, cement, heavy mobility, and industrial heating. The government has
taken ample initiatives to effectively integrate renewable energy into the present
energy mix. North America, one of the major markets for Avalon, is the most important
regions in the development and adoption of hydrogen technology. The region is
actively executing measures to reduce emissions and support alternative clean-energy
sources.
A blooming electrical vehicles industry is driving a revolution

The electric vehicles industry is seeing substantial proliferation and market gains within
the automotive industry. As innovation and development in environmental From clean energy, we expect strong
sustainability and digitalization gain traction, this industry is taking centre stage. Hero order inflow of Rs 3.4bn/5.2bn in
Electric, Okinawa, Ampere, and Ather are the leading players in the e2W segment in FY24/25 for Avalon.
India, while Tata Motors, MG, Mahindra, and Hyundai are automotive giants that are
currently leading the electric vehicle revolution in the e4W segment.
We expect revenue CAGR of 37% from FY23-25; due to We expect order book CAGR of c.30% over FY23-25
significant focus on continue customer addition.
Clean Energy
Clean Energy yoy growth
6000
5000 CAGR: 37% 45% 5,205
4,444 CAGR: 30%
4500 40% 5000
4000 35%
3,324 4000
3500 3,419
30%
In Rs. mn
3,078
3000
in Rs. mn
CAGR: 32% 2,363 25% 3000 CAGR: 56%

2500
1,727 20%
2000 1,762
2000
1,234 15%
1500 1,026 1,134
1000 768 10% 807
1000
500 5%
0 0% 0
2. Industrial, 29% of rev: To see fast growth in India, decent growth in Key Drivers for this segment include:
US • Government incentives in form of
• Avalon caters to 39 customers in the industrial segment as of 30th November approving PLI schemes and improving
electronics supply chain and assembly
2022.
industry
• Industry estimates peg this segment (which consists of power & automation) at Rs • Power electronic products being
58bn in FY22 in India, with a CAGR of 19% to touch Rs 115bn by FY26. integrated into ALL types of energy
• The segment was estimated to be US$ 11bn in CY21 in North America, with a CAGR conversion applications.
of 5.4% to touch US$ 14bn by CY26.
• Most of the large manufacturing companies are investing heavily in the
technological upgrade of their facilities by adopting digitization and industry 4.0
concepts (meaning integration of digital technologies, automation, and data
exchange to create a more connected, efficient, and intelligent industrial
environment). This will increase demand for Industrial electronics products, which
will in turn boost the EMS industry.

• Some of its marquee customers here include e-Infochips Private Limited and Haas
Automation, Inc.
• An example – one of Avalon’s products in this segment is plastic piston assembly, Key client includes E-infochips pvt. ltd.
which is used in fuelling systems. which has seen revenue CAGR of 14%
• We expect revenues of Rs 3.2/4.1bn from industrials in FY24/25– a CAGR of 23% over FY18-22
over FY23-25.
We expect revenue CAGR of c.23% in FY23-25 vs. 11% in We expect order book CAGR of c.20% in FY23-25
FY19-23
Industrial
Industrial yoy growth
6000
4500 4,134 30% 5,181
CAGR: 23%
CAGR: 20%
4000 5000
3,284 25%
3500
CAGR: 11% 3,759
3000 2,741 20% 4000 3,570
2,558
In Rs. mn
In Rs. mn
2500 CAGR: 36%
2,043 15% 3000 2,610
2000 1,790 1,823
1500 10% 1,877

2000
1,433
1000
5%
500 1000
0 0%
FY19 FY20 FY21 FY22 FY23 FY24E FY25E 0
Power electronics and industrial automation are key segments for Avalon
➢ Power and automation, included in the Industrial segment for Avalon, play a
crucial role in electrified vehicles applications that require compact and highly
efficient power conversion solutions.
➢ The industrial automation industry presents numerous opportunities for
innovative technology companies that support multiple other industries.
➢ Steps taken by the government towards improving electronics supply chain and
assembly and PLI will drive growth for this industry.
2. Mobility/transportation, 21% of revenue

• Avalon catered to 13 customers in this segment as of 30th November 2022.
• Industry estimates peg the mobility sector (which includes automotive, railways, One of the key clients- Faiveley
and aerospace) at Rs 78bn in FY22 in India, and CAGR of 22% to reach Rs 171bn by transport rail tech. India pvt. ltd. has
FY26. witnessed revenue CAGR of 26% over
• In North America, the segment was pegged at US$ 5bn in CY21, with a CAGR of 4% FY17-22 to reach Rs. 16,915mn
to reach US$ 6bn by CY26.
• Some of its customers here include Kyosan India Private Limited, Faiveley
Transport Rail Technologies India Private Limited, a Wabtec Company, TransDigm
Technologies India Private Limited, Zonar Systems Inc., and Collins Aerospace.
• An example – Avalon delivers control units and box-builds in this segment, which
is used in the pneumatic braking systems of locomotives.
• For Avalon, we expect revenues of Rs 2.7/3.7bn in this segment in FY24/25 with
order inflow of Rs 2.7bn/3.7bn.

Few products manufactured by Avalon under Mobility

Automotive products Railway products
We expect revenue CAGR of c.37% over FY23-25 vs. 1% over We expect order book CAGR of c.19% over FY23-25 vs. 18%
FY19-23. over FY20-23
Mobility/Transportation yoy growth Mobility/Transportation
4000 3,751 50% 4000 3,680

CAGR: 37% CAGR: 19%
3500 40% 3500
3000 2,714 3000 2,778

CAGR: 1% 30% CAGR: 18% 2,585
2500 2,265 2500 2,311
In Rs. mn
in Rs. mn
2,012 1,984 1,985 20%

1,889 1,823
2000 2000
1,582
10%
1500 1500
0%
1000 1000
500 -10% 500
0 -20% 0
India's automotive sector shifts to electronics, slowly developing local manufacturing

• Automotive electronics have become an essential aspect of the shift from
• India’s automotive industry is
conventional mechanical systems to electronic systems.
shifting towards electronic systems.
• The Indian automotive electronics business imports 65-70% components for Its import-heavy market is slowly
vehicles due to lack of a manufacturing ecosystem in India. However, various developing a local manufacturing
government initiatives are slowly solidifying the ecosystem and resolving this ecosystem
situation. • India’s railway network still relies on
• India’s railway network is the world’s third-largest in terms of size. Railways is global OEMs for critical products like
characterized by long lead times for customer acquisition, on-boarding, anti-collision railway signalling
prototyping, OEM approvals and subsequent production, given the critical nature systems
of requirements.
• Global OEMs such as Siemens, Thales, Hitachi, Alstom, and Bombardier control the
Indian market. These companies have Indian subsidiaries to meet the needs of
local production. One of the key products is anti-collision railway signalling system.
• Therefore, Avalon will be a major beneficiary of orders from industries like
automotive and railways, where local manufacturing is gaining significantly.

India's aerospace industry booming, electronics sector in demand

• In India, the aerospace industry is growing considerably, with rising activity from
both the defence and civil aviation segments. Avalon recently won new business from
one of the world’s largest aerospace
• According to Airbus and Boeing, India will require over 2,200 new aircraft over the conglomerates including a factory
next 20 years to meet demand. Because of its unprecedented growth, electronics transfer project to India.
has emerged as a strategic and profitable industry in the aerospace segment.
• One of the key products made by Avalon here is a combustion liner.
• Avalon expects to build capabilities for bringing inhouse a special processing of
metal, required for aerospace industry. Presently, Avalon outsources most of such
processing. Helping Avalon to boost its margins.
Aerospace products manufactured by Avalon
3. Communication, 11% of revenue

• India is the world's second-largest telecommunications market. Over the next five
years, increase in mobile-phone penetration and reduction in data prices will add
500mn additional internet users in India.
• There is a need for deep penetration of broadband networks to boost India’s Avalon caters to 11 customers in the
telecom and networking products segment. communication technology space as of
• Substantial fabrication and infrastructure improvements are required to bring in November 2022, and since 2020, it has
5G connections, which will be a key focus area ahead. on-boarded three new customers within
this industry, including LiveView
• Ericsson, Nokia, Samsung, ZTE, and Huawei are some of the leaders in the telecom
Technologies, Inc.
equipment market in India.
• Communication, which includes telecom equipment, 5G, satellite, digital
infrastructure, is valued at Rs 57bn in FY22, and likely to see a CAGR of 18% to
reach Rs 109bn by FY26 in India.
Few of the products manufactured by Avalon under communication

5G products Products related to digital infrastructure

• We expect its revenues in FY24/25 for this segment at Rs 1.5/2bn with order inflow
of Rs 1.5bn/2.4bn.
We expect revenue CAGR of c.41% in FY23-25 vs -7% in FY19- We expect order book CAGR of c.33% in FY23-25
23
Communication
Communication yoy growth
3000
2500 CAGR: 41% 80%
2500 2,391
2,066 60% CAGR: 33%
2000 CAGR: -7%
40% 2000
1,490 1,566
In Rs. mn
1500 1,388 20%
1,354
In Rs. mn
1500 CAGR:61%
1,040 0%
1000 -20% 1000
547 611 624
-40% 502
409 322
500 500
-60%
0 -80% 0
4. Healthcare, others (defence + design)

• Avalon caters to 12 customers in the medical and other segment as of November
30, 2022 and, since 2020, it has on-boarded two new customers within these
sectors.
• Major electronics segments in the medical industry include MRI, x-ray, ultrasound, Caire Inc is one of the marquee
etc., and also patient aids, including hearing aids and pacemakers, etc. clients for Avalon
• We expect medical electronics to be one of the fastest growing segments due to
high demand for products such as advanced medical testing, diagnosis, and
monitoring equipment.
• The medical devices segment was estimated at Rs 23bn in FY22 in India and is
expected to grow at a CAGR of 43% to reach Rs 94bn by FY26.
• The medical electronics segment was estimated at US$ 8bn in CY21 in North
America, and is expected grow at a CAGR of 6.4% to reach US$ 11bn by CY26.
• We expect revenues of Rs 0.6/1.0bn for this segment in FY24/25 with order inflow
of Rs 2.1bn/2.5bn.
We expect revenue CAGR of c.30% over FY23-25 vs. -5% over We expect order book CAGR of c.25% over FY23-25 vs. 17%
FY19-23 over FY20-23
Medical yoy growth Medical & Others
1200 50% 3000
CAGR: 30% 1,008 40% CAGR: 25% 2,497
1000 CAGR: -5% 2500
30% 2,081
800 729 698 20% 2000 CAGR: 17%
656 1,600
In Rs. mn
In Rs. mn
595 10%
527 545 1,383
600 1500
0% 1,059
991
400 -10% 1000
-20%
200 500
-30%
0 -40% 0

Avalon is a one stop-shop for EMS Avalon has the highest share of
Avalon is an integrated end-to-end solutions provider. It provides various services such box build among its peers
as PCB design and assembly, cable assembly, wire harness, sheet metal fabrication, Box Build - FY23
sheet metal machining, plastic injection moulding, magnetics, electro-mechanical 0.5
integration, which allows it to offer end-to-end box build solutions. It offers all services 47%
0.4
right from PCB design and assembly to new product development and subsequent
% of revenue
volume production. 0.3
32%
30%
0.2
Revenue mix in FY22 in terms of service offerings
19%
Magnetics, 1.8% Plastics, 0.8% 0.1
Metal, 3.8% Design , 2.2% 0
Syrma Kaynes Avalon Cyient
Cables, 9.8%
Tech Tech Tech DLM
PCB, 33.2%
Management has guided that they

expect to continue the increase in share
of box builds to overall revenues, which
will provide better margins and help it
Box build, 48.2% gain higher wallet share with
customers.
Box build process
Further, it focuses on continually expanding technological expertise in manufacturing

for diverse industries, integrating its services, and thereby enhancing the capability to
serve multiple industry verticals. Avalon’s dedication to manufacturing and supply of
quality products throughout the infrastructure ensures customer satisfaction, fosters
customer loyalty and generates repeat business.
Manufacturing, geographical presence

• Avalon has 12 manufacturing facilities spread across two states in the US
(California and Georgia) and two states in India (Karnataka and Tamil Nadu).
• Its facilities have an aggregate of 66 production lines, consisting of 11 Surface
Mount Technology (SMT) lines, 12 Through-Hole Technology (THT) lines and 43
assembly lines, with a total installed capacity of 366mn components placements
per year in FY22.
• It operates 2 shifts a day with sufficient buffer capacity to ramp up production and
address spikes in order volume.
• It began expansion of two manufacturing plants with an area of 160,000 sq. ft. at
MEPZ-Chennai, which it will predominantly use for box-builds.

Approximate weighted average group capacity utilization Capacity utilization across segments as of 8MFY23
80% 80%
69%
67% 70%
70% 63% 60% 60%
61% 59% 60%
60% 52%
50% 46%
50%
40%
40% 30% 22%
30% 20%
20% 10%
10% 0%
PCB Sheet metal Cable & Magnetics Plastics
0% components wire
FY20 FY21 FY22 8MFY22 8MFY23 harness
Two-country manufacturing footprint allows localized services, cost advantages

Avalon has developed a global manufacturing footprint via its manufacturing facilities Avalon's manufacturing presence in
India and the US allows it to provide
located in India and the US. Through these, it provides localised services to clients in
localized services and cost arbitrage to
both locations. It makes the most of the manufacturing cost arbitrage that its India
customers. Its location in an SEZ in
facilities bring, and leverages this to gain traction in the global market. Chennai allows it access to duty-free
imports of raw materials for finished-
Its Indo-American manufacturing footprint gives customers the leverage to buy directly product exports
from India or through its US operations. 80% of its manufacturing takes place in India,
but a majority is exported to North America due to the higher customer concentration
from that region. Its India manufacturing facilities are located in a SEZ in the port city
of Chennai, India, which helps in availing various incentive such as the ability to import
raw material without duties.
Revenue split across Avalon’s key geographies
Avalon is well placed to take advantage
United States India of ‘infrastructure bill’ of US, which
provides subsidies for manufacturing
120%
product in the US.
100%
Its customers can cater to ‘Made in USA’
80% 38% 37% 38% 41% initiatives, while at the same time being
able to procure products at optimal cost.
60%
Avalon also benefits from ‘Made in India for
40% the US’.
62% 63% 62% 59%
20%
0%
FY20 FY21 FY22 FY23

Key strategies going forward

Sustaining and catering to high growth sunrise industry sectors such as clean energy
and emerging communication technologies:
• Intends to leverage its experience and expertise in manufacturing to tackle high
growth industries such as clean energy, aerospace, and defence, mobility and
communications.
• The clean energy sector comprises of solar, EVs and hydrogen whereas
communication comprises of telecom, satellite and digital infrastructure.
• Focus will be on high precision engineering and high-margin value products with
medium to long life cycles.
Consolidate and expand its position in global markets for existing industry verticals:
• Many of its customers are large OEMs that have multiple divisions and facilities
across countries.
• Through continuous engagement and relationship building, Avalon has built its
presence across multiple divisions of the same customer, thereby gaining wallet
share and increasing upselling opportunities.
• It will continue to develop longstanding relationships with customers with the end
goal of developing and supplying more sophisticated high margin products.
Number of customers across different industries

45
39
40
35
number of customers
30
25
20
15 13 12
11
10
5
0
Industrial Communications Mobility Medical and Others
Creating high growth opportunities for its existing offerings:

• It has invested significant time, effort and resources to develop competencies in
the aerospace development vertical.
• There are high growth opportunities in power electronics and clean energy vertical
in magnetics.
• Avalon continues to add new applications for transformers, chokes and inductors,
and for the control and operation of heavy machinery.
• EVs are also one of the key growth verticals the company is aggressively working
towards.
Focus on expanding its local manufacturing presence in largest markets, namely the
United States and India by leveraging country specific government policy initiatives:
• Avalon will continue to grow its customer base in both the US and Indian markets.
• The Indian market opportunity will be driven by relocation of global OEMs to
alternate manufacturing destinations (China +1 strategy).
• With strong government policies in place there are ample incentives for
manufacturers in India.
• Further, the advent of semiconductor manufacturing in India will play big
importance since it is a significant component of PCB design and assembly.

• The EMS market in North America is benefitting from US-China trade tensions that
are causing a re-shoring of manufacturing back to USA.
Flexibility in manufacturing and leveraging hybrid model
Invest in expanding the technological capabilities and manufacturing capacities:

• In order to be competitive in the market, Avalon constantly evaluates and
implements purchase of new equipment to improve the production efficiency.
• It plans to upgrade its manufacturing facilities in India to further the automation
of lines, and hence increase efficiency.
• It constantly keeps a check on its capacity utilization, currently operating two shifts
a day, but with the capacity to increase to three, an indication of sufficient legroom
for better utilization of its asset base.
Uniquely positioned to capture the sizeable and growing EMS market opportunity as
it is focused on:
• Vertically integration and ‘high mix’ product offerings across multiple industries
• Growing presence in sunrise sectors
• Longstanding and growing relationship with marquee customers
• Strong client delivery model with new product development and cross-selling
capabilities supported by hybrid manufacturing
• Global manufacturing footprint to serve local and international customers
• Strong financial performance with industry leading financial metrics


Avalon will see a revenue CAGR of c.32% over FY23-25E Conservative GM profile: However, we expect the margins
backed by strong growth across in Clean energy, industrial to improve due to increase in share of box build in overall
and mobility revenue
Revenue Growth (YoY) Gross margins
18000 16477 40% 37% 36.16% 36.18%

CAGR(FY23-25E): 35.93%
16000 35.78%
32% 35% 36%
14000 12252 30% 36%
12000
9447 25% 35%
in Rs mn
10000 8407
20% 35% GM (FY23):
6905 33.96% 34.09%
8000 6419 Syrma: 25%
15% 34% Kaynes: 30%
6000
Cyieint DLM: 22%
4000 10% 34%
2000 5% 33%
0 0% 33%
We expect OPM to expand by 110bps over the next 2 years, Avalon’s earnings to see steady improvement; we expect
CAGR of 38% over FY23-25E mainly because of operating PAT to expand by 310 bps over FY23-25E
leverage and cost controls.
PAT PATM (%)
EBITDA OPM (%)
1600 10%
In Q4FY23, EBITDA margin was 1440
2500 15.1% due to lower freight cost and 14% 8.0% 9%
2148 1400 7.8%
product mix 8.7% 8%
13.0% 12%
2000 12.8% 1200
7%
11.6% 11.9% 10% 5.6% 960
1570 1000 6%
in Rs mn
1500 10.0%
9.6%
in Rs mn
8% 800 5%
1128 674
975 3.3% 525 4%
1000 6% 600
645 661 1.9% 3%
4% 400
500 231 2%
2% 200 123
1%
0 0% 0 0%
ROCE & ROE impacted in FY23 because of IPO reserves; Avalon to generate significant CFO over FY23-25E due to cost
however, this will be back to normal levels over FY24-25 management
ROCE ROE
700 657 CFO
0.9 600 545
77%
0.8
500 435
0.7
400
0.6
return ratios
in Rs mn
0.5 300
39%
0.4 200 139
26% 24% 26%
0.3 21% 100 55
17%
0.2 13%
24% 0
0.1 21%
17% FY20 FY21 FY22 FY23 FY24E FY25E
10% -100
0
FY20 FY21 FY22 FY23 FY24E FY25E -200 (133)
Source: PhillipCapital India Research Estimates, Company Data Source: PhillipCapital India Research Estimates, Company Data

We expect RoE to expand significantly on account of better revenue mix and cost controls
Asset turnover (x) 2.5 2.1 2.2 1.1 1.7 2.1
RoE (%) 26.2 38.5 76.9 9.6 17.3 20.6
Source: PhillipCapital India Research Estimates, Company Data
Debt:equity and net-debt:equity: we expect D/E to show FCF to PAT: This industry to see significant capex over next 2-
decreasing trend and hence improving return ratios. 3 years, FCF generation will take time
Debt/Equity Net Debt/Equity 5
3.9
6 5.34 4
4.93
5 3
4 4.81 3.37 2
4.40
3 1
3.28 0.3 0.1
0.0
2 0
1 0.57
0.28 0.15 -1 -0.6 -0.8
0
FY20 FY21 FY22 FY23 FY24E FY25E -2
-1 -0.22 -0.10 -0.11 FY20 FY21 FY22 FY23 FY24E FY25E
Source: PhillipCapital India Research Estimates, Company Data Source: PhillipCapital India Research Estimates, Company Data
Conservative working capital (WC) break-up; Presently high WC days due to

headwinds (inflation, inventory correction) in US markets, however, management
expects working capital days to decrease over the FY24E-25 due to easing of supply
chain.
140 Debtor days Inventory days Payable days

121 119 116
120
100
95
100 87 85
76 73 76 79 79 77
80
64 61 61 60
57
60
40
20
0
Source: PhillipCapital India Research Estimates, Company Data

Outlook and Valuation

Over the next 2-3 years, Avalon will see strong profitable growth led by:
• Higher share of box builds among peers, plus developing ODM and vertical
integration, which will lead to stronger realisations and margins,
• Long product life + higher mix =Customer stickiness
• increasing share of clean energy, where the industry itself is poised for 87% CAGR
over FY22-26,
• Continuous focus on adding new customers in segments such as industrial,
mobility, and aerospace, along with increasing wallet share among existing
customers,
• Strong domestic order book traction, along with growing exports business,
• Indo-US manufacturing footprint, which gives its customers the flexibility to buy
directly from India or the US, or a blend of the two, and
• Strong industry tailwinds.
With all this, we expect Avalon to see revenue/EBITDA/PAT CAGR of c.32%/38%/66%

over FY23-25, with GM of 36% and OPM of 12.8%/13.0% in FY24/25.
We see strong earnings growth of c.83%/50% in FY24/FY25 respectively, improved

ROCE/ROE of c.25.6%/20.7% in FY25, and better working capital, based on which we
value Avalon at 37x FY25 EPS (it trades at 26x a FY25 PE at CMP) to arrive at a target
of Rs 920. We initiate coverage on Avalon with a Buy rating.

Company overview
The end-user industries Avalon caters to include a mix of established and long product
lifecycle industries. Some of the industries it caters to are mobility, industrials, medical
devices, as well as some “sunrise” sectors such as solar, EV, hydrogen in clean energy
and digital infrastructure in the communications sector.
Avalon has three wholly-owned subsidiaries operating out of India and USA
Service offerings:
• PCB design and assembly
• Cable assembly
• Wire harness
• Sheet metal fabrication and machining
• Magnetics
• Injection moulding plastics
• Box builds of electronic systems
Avalon is an end-to-end EMS solutions provider

Service offerings FY20 FY21 FY22
Design 140 151 185
as a % of total revenues 2% 2% 2%
PCBA 2286 2429 2962
Box build 2831 3277 3740
Cables 545 635 846
Metal 455 291 352
Magnetics 68 88 266
Plastics 94 33 57
Total 6419 6905 8407
Key customers: Some key customers of the company are Kyosan India, Zonar systems,
Collins Aerospace, e-Infochips, The US Malabar company, Meggit and Systech
corporation, all of which the company has been engaging in business for over 7+ years.
The customer base has steadily increased from 54 in FY20 to 62 in FY21, 81 in FY22.

History
• Incorporated in 1999 at Chennai, India as a manufacturing facility catering mainly
to ABV Electronics Inc, USA
• In 2000, it began operations as a pure-play PCB design and assembly company in
India.
• It has continuously diversified its product portfolio in order to adapt with the ever-
changing needs of its consumers.
• Avalon was incorporated by Mr. Kunhamed Bicha and Mr. Bhaskar Srinivasan, who
have 2+ decades of experience in the field of EMS.
• The senior management team includes Kesavan P, Michael Robinson, Shamil
Bicha, OJ Sathish, Savita R Ganjigatti, Dr. Rajesh V and Arjun Balakrishnan, all of
whom have significant experience and have been associated with the company for
several years.
The journey so far
Manufacturing
• 12 manufacturing units across USA and India: 1 unit in Atlanta, Georgia and 1 in
Fremont, California, 7 units in Chennai, Tamil Nadu, 1 in Kanchipuram, Chennai
and 2 units in Bengaluru, Karnataka.
• Stands to benefit from PLI across verticals, which will reduce import dependence
and help India reach the goal of becoming an “export hub to the world”.
• EMS facilities comprise a total of 65 production lines, consisting of 10 SMT lines,
12 through-hole-technology lines and 43 assembly lines.
• It has separate lines for sheet metal fabrication, machining, cable assembly and
wire harness, magnetics and plastics etc.
• It is one of the leaders in the high-margin, flexible-volume product manufacturing
segment and is present across multiple industry verticals.
• Also expanded into products such as electric mobility, energy systems, satellite
communications, and telematics, among others, that are used in industries such
as clean energy and emerging communication technology.

Avalon has global footprint, which helps to serve customers primarily in North America, India, and Europe through these
locations
Present capacity across segments and utilization levels

PCBA segment FY20 FY21 FY22
Number of PCBA SMT lines 8 9 10
Production capacity (in mn of components placed/ year) 244 279 366
Total placements achieved (in mn of components placed/ year) 181 139 234
Utilization (%) 74% 50% 64%
Cable assembly & wire harness segment FY20 FY21 FY22

Production capacity (in mn of lead wires cut/ year) 17.2 15.1 17.2
Actual lead wires cut (in mn of lead wires cut/ year) 7.8 8.8 10.2
Magnetics segment FY20 FY21 FY22

Production capacity (in thousands of transformers/ year) 25 26 34
Total transformers varnished (in thousands/ YEAR) 13 12 22
Plastics segment FY20 FY21 FY22

Production capacity (in mn of parts/ year) 1 1 1
Actual parts achieved (in mn of parts/ year) 0.4 0.4 0.5
Sheet fabrication segment FY20 FY21 FY22

Production capacity (in mn of parts/ year) 2.7 2.3 2.7
Actual parts achieved (in mn of parts/ year) 1.7 1.2 1.6

A competent board and management team

Avalon has a diversified board of directors, which is supplemented by a strong
management team with extensive experience in the EMS sector and a proven track
record of performance. A strong competent team in place allows the company to
capture market opportunities, manage client expectations, formulate and execute
business strategies and proactively manage changes in business conditions
Board of directors
Management Designation Date of joining
Kunhamed Bicha Chairman & MD Since incorporation
Bhaskar Srinivasan Non-executive director Since incorporation
Luquman Veedu Ediyanam Non-executive director 3-Mar-17
Sareday Seshu Kumar Non-executive director 5-Sep-01
Venkataramani Ananthramakrishnan Independent Director 7-Jul-22
Chandar Pattabhiram Independent Director 7-Jul-22
Byas Unnikrishnan Nambisan Independent Director 19-Jul-22
Nandita Abraham Independent Director 8-Feb-23
A competent and experienced management in place across segments

COO - Manufacturing operations Bachelor’s degree in Science from Polytechnic Prior experience with Motorola, Wconnect
Michael Robinson
in US Institute, US LLC
Prior experience with A.F. Ferguson & Co
Bachelor’s degree in civil engineering from
RM Subramaniam CFO - Avalon and its subsidiaries Cairn Energy India Pty. Ltd. and Essar Oil
BITS and PGDM from IIM, Bangalore
Ltd.
Bachelors in mechanical engineering from
Shamil Bicha VP, Business Development Prior experience with Applied Materials
University of Madras
Attended first year of diploma course in Prior experience: Quest Smartech Pvt.
Kesavan P VP, Operations telecommunication from MEI Polytechnic, Ltd., Texmaxo Micro Indo Utama, Sun
Bengaluru Fiber Optics Pvt. Ltd., MiniCircuits Ltd
Holds an MS (engineering) from University of Prior experience: Holm Industries, GE
Arjun Balakrishnan VP, Corporate Strategy Texas, US and an MBA from Harvard Power Controls India Ltd., Panasonic India
University, Boston, US Pvt. Ltd.
Holds Bachelors in Engineering from
VP, PCB & Semiconductor
O J Satish Annamalai University and PGDM (operations Prior experience: Alpha-Imager Pvt. Ltd.
Engineering
management) from IGNOU
Holds a bachelors in engineering and masters
VP, Engineering (PCB design and Prior experience: Karnataka Telecom Ltd.,
Savita Ganjigatti in technology from Visvesvaraya Technology
analysis) Alpha-Imager Pvt. Ltd.
University, Belgaum
Holds bachelors in science (electrical Prior experience: Dwfritz Automation LLC,
engineering) from Northeastern University, Celestica Corporation, Electri-Cord
Harold Frederick Schilb III VP, Business Development
Massachusetts, US and an MBA from Fairleigh Manufacturing Co, IEC Electronics Corp,
Dickinson University, US etc.

Financials
Net sales 8,407 9,447 12,252 16,477 Pre-tax profit 856 727 1,289 1,934
Other operating income - - - - Chg in working capital (848) (1,125) (807) (1,109)
Employee expenses 1,314 1,605 2,083 2,768 Cash flow from operating activities 139 (133) 435 545
Other Operating expenses 577 647 777 1,045 Capital expenditure (159) (273) (188) (379)
EBITDA (Core) 975 1,128 1,570 2,148 Chg in investments (11) - - -
Margin, % 11.6 11.9 12.8 13.0 Cash flow from investing activities (166) (271) (38) (219)
Depreciation 180 197 228 257 Free cash flow 168 (153) 548 414
EBIT 795 931 1,342 1,890 Equity raised/(repaid) (68) 4,815 - -
Growth, % 57.8 17.1 44.1 40.8 Debt raised/(repaid) 158 48 (1,500) (500)
Margin, % 9.5 9.9 11.0 11.5 Dividend (incl. tax) (38) (37) - -
Interest paid 248 348 203 117 Cash flow from financing activities (208) 4,542 (1,703) (617)
Other Income 109 144 150 160 Net chg in cash (235) 4,138 (1,307) (290)
Non-recurring Items 200 - - -
Pre tax profit 856 727 1,289 1,934
Tax provided 183 202 329 493
Profit after tax 674 525 960 1,440
Valuation Ratios
Net Profit 674 525 960 1,440 Per Share data
Growth, % 191.8 (22.1) 82.9 50.0 EPS (INR) 11.6 9.1 16.6 24.9
Net Profit (adjusted) 674 525 960 1,440 Growth, % 191.8 (22.1) 82.9 50.0
CEPS (INR) 14.7 12.5 20.5 29.3
CFPS (INR) 2.4 (2.3) 7.5 9.4
Cash & bank 101 4,222 2,099 1,809 Return ratios
Loans & advances 66 91 91 91 ROIC (%) 12.8 30.4 26.6 28.7
Other current assets 466 821 1,064 1,431
Investments - - - - Asset turnover (x) 7.4 6.6 8.8 10.9
Less: Depreciation (493) (689) (917) (1,174) Working capital/Sales (x) 3.1 1.3 2.2 2.5

Non - current liabilities 2,941 3,063 1,563 1,063 Interest cover (x) 3.2 2.7 6.6 16.2
Paid - up capital 16 116 116 116 Net debt/Equity (x) 3.3 (0.2) (0.1) (0.1)
Reserves & surplus 856 5,254 5,398 6,839
Minorities - - - - Valuation
Shareholders’ equity 872 5,370 5,514 6,955 PER (x) 55.9 71.7 39.2 26.1
Total equity & liabilities 5,880 11,803 11,368 13,675 PEG (x) yoy growth 0.3 (3.3) 0.5 0.5
Price/Book (x) 43.2 7.0 6.8 5.4
EV/Net sales (x) 4.8 3.9 3.0 2.2
EV/EBITDA (x) 41.5 32.4 23.6 17.2
EV/EBIT (x) 50.9 39.2 27.6 19.5

Cyient DLM Ltd (CYIENTDL IN)

Capacity in place + robust order book will drive growth
19 July 2023
Cyient DLM is a leading integrated EMS and solutions provider with capabilities across the
value chain and entire lifecycle of a product. It has 22+ years of experience in developing
BUY
high-mix low-volume highly complex systems and is a qualified supplier to major global CMP RS 505
OEMs in aerospace & defence, industrials, and medical technology. Its EMS offerings are TARGET RS 622 (+23%)
further segmented into B2P (Build to Print) and B2S (Build to Specification). Its primary SEBI CATEGORY:
offerings include: (1) PCBA, (2) cable harnesses, and (3) box builds. Cyient has seen a
revenue CAGR of 22% over FY20-23. It has industry leading order to bill of 2.92x as of FY23. COMPANY DATA
We expect revenue/earnings CAGR of 47%/105% over FY23-25 backed by strong uptick MARKET CAP (RSBN) : 40
across industry segments and a robust order book of Rs 24.3bn in FY23 executable over next MARKET CAP (USDBN) : 0.5
18-24 months. 52 - WK HI/LO (RS) : 547 / 401
Why do we like Cyient DLM? PAR VALUE (RS) : 10
➢ Unique sub-segments create high entry barriers: Cyient DLM differentiates itself by
serving customers that operate in highly regulated industries. It specializes in providing SHARE HOLDING PATTERN, %
electronics solutions for safety and mission-critical applications, setting it apart from its Jun 23
PROMOTERS : 66.7
competitors. DII : 12.2
➢ High customer stickiness: Cyient has a smaller number of clients but has old business FII : 7.2
relationships. As a strategic partner to clients across highly regulated industries, it enjoys OTHERS : 14.0
long term relationships with high customer stickiness and higher opportunity of repeat
KEY FINANCIALS
business. This allows for a higher revenue visibility. Also, global leading customers are
Rs mn FY23 FY24E FY25E
continuously increasing share with Cyient.
Net Sales 8,320 11,702 17,880
➢ Build capacity to support growth: With three manufacturing facilities operating at a EBITDA 878 1,260 2,102
combined capacity of less than 50%, Cyient DLM is poised to capitalize on a favourable Net Profit 317 655 1,336
industry environment and growing wallet share from its existing customers. It already EPS, Rs 6.0 8.7 17.8
has an industry leading order book of Rs 24.3bn, which we expect will see a CAGR of 42% PER, x 82.8 57.1 28.0
over the next two years. EV/EBITDA, x 31.6 18.1 10.9
➢ Strategically bolstering competitive advantages: The following efforts showcase Cyient PBV, x 13.3 4.4 3.8
DLM's commitment to bolstering its market position and improving margins – it is ROE, % 23.1 12.4 14.5
strategically expanding its aftermarket and value-added services segments, exploring
backward integration for OSAT offerings, implementing automation to boost operational
efficiency and to reduce logistics costs, pursuing North American expansion for better dagarwal@phillipcapital.in
client proximity, and actively reducing supplier concentration.
➢ Export is a major area; will explore domestic opportunities: Its export revenue CAGR Bhavanishankar Kumawat, Research Associate
was a significant 47% over FY21-23, contributing 60% of its overall revenue in FY23. With bkumawat@phillipcapital.in
great opportunities opening up in aerospace (Cyient’s DLM expertise area) and other
Nikhil Kandoi, Research Associate
industries in India, Cyient will also start exploring domestic clients. nkandoi@phillipcapital.in
➢ Harnessing the power of parentage: Cyient DLM strategically leverages its parentage
(Cyient Ltd, a global engineering and technology solutions company), to unlock the high-
margin capabilities of Original Design Manufacturing (ODM)/ Build-to-Specification (B2S)
services. While it a small share of overall revenue at present, their CAGR is at 35%. We
anticipate improved mix of these services leading to increased revenues and
subsequently enhanced margins.
Outlook and valuation: Over the next 2-3 years, Cyient DLM will see strong revenue growth
led by: (1) strong order book of c.Rs 24bn, which is 3x FY23, (2) customer stickiness will
provide higher revenue visibility (3) current capacities, which can cater to most of its order
book, (4) its expanding value-added segment, plus move towards OSAT, which will add to
margins and revenue, (5) higher A&D portfolio making it an expert player in the industry, (6)
increasing customer concentration, which means high focus on value-added customers, and
(7) strong industry tailwinds. All these factors will lead to Revenue/EBITDA/PAT CAGR of
47%/55%/105% over FY23-25 with OPM of 10.8%/11.8% in FY24/25 and yoy earnings growth
of 106%/104%. Based on this, robust order book, high earning CAGR, and improved working
capital, we value Cyient DLM at 35x on FY25 EPS (the stock trades at 28x FY25 EPS at CMP).
We initiate coverage with a BUY rating and a target of Rs 622.

CYIENT DLM LTD INITIATING COVERAGE
Customer base acts as a high entry barrier

Cyient DLM specialises in serving a broad spectrum of highly regulated industries,
including aerospace and defence (A&D), medical technology, and industrial sectors
that demand strict requirements and certifications. While competitors also cater to
these segments, Cyient's unique focus within these sub-segments sets it apart and
provides a competitive advantage by creating barriers to entry.
Key sub-segments of Cyient DLM
Core Industries
Industry
Prioritization
In A&D, Cyient DLM caters to highly
complex, safety-critical electronic such
as cockpit systems and flight control
Commercial Meditech Industrial systems
Aerospace Equipment Controllers
Key Sub- Defence Diagnostics Test and
segments Aarospave Equipment Measure
identification Defence
equipment
Key offerings for major product segments
A&D
Med Tech
Industrial
➢ TR cards for radar (defense)
➢ Imaging systems
➢ Cockpit aviation products ➢ Systems for Oil and Gas
Power systems o Pathology/virology equip.
o Ultrasounds o Power systems
➢ Guided missile control
➢ In-vitro diagnostics o Flow meters
➢ Onboard computer cards
➢ Cardiovascular o Controller cards
o I/O cards
In sub-segments characterized by high complexity and criticality, customer loyalty

becomes paramount. Customers in these industries exhibit a strong inclination to
maintain long-term relationships with trusted partners. The selection process for such For Cyient, the customer acquisition
process typically spans 6 to 12 months
partnerships is rigorous and time-consuming, involving a comprehensive evaluation of
the manufacturer's expertise, manufacturing facilities, processes, financial capabilities,
and logistical capabilities.

Key customers, their nature and contribution to overall revenues from FY21-23
Number of years of
Key customers Segment FY21 FY22 FY23
relationship*
ABB's contribution increased
ABB Industrial 14 431 786 1794
substantially between FY21 and FY23.
as a % of sales 6.9% 10.9% 21.8%
Bharat Electronics A&D 12 867 1086 887 Bharat Electronics' contribution
as a % of sales 13.8% 15.1% 10.7% fluctuated, but remained substantial.
Honeywell International A&D 14 540 539 747
as a % of sales 8.6% 7.5% 9.0% Molbio Diagnostics’ share decreased
Thales Global Services A&D 8 639 693 1046 significantly over FY21-23
as a % of sales 10.2% 9.6% 12.6%
Molbio diagnostics Medical Technology 10 1031 515 241
as a % of sales 16.4% 7.2% 2.9%
Total - - 3509 3619 4715
as a % of sales - - 55.9% 50.2% 56.7%
*As of March 31, 2023
As a strategic partner to clients across highly regulated industries, Cyient DLM enjoys
long-term relationships with high customer stickiness and a great proportion of repeat
business, which allows it to have revenue visibility and a stable client base. The repeat
contracts from customer is a substantial portion of its business at almost its entire
revenue in FY23.
Evolving PCB manufacturing excellence

Cyient DLM has evolved from manufacturing simple PCBs (temperature transmitters,
switching devices, airport lighting systems, etc.) to more complex PCBs for safety-
critical applications, cable harnesses, and box-builds to large assemblies. This prevents
its client from switching to other EMS partners.
Reducing a long tail of customers

Cyient has demonstrated a clear focus on reducing its long tail of customers by placing
Cyient’s contract with Honeywell
emphasis on cultivating relationships with strategic and marquee clients. The
International Inc. is for more than 15
company's objective is to build long-term partnerships, as reflected in the contractual years
agreements that typically extend between 3 years and more than 15 years with its
clients.
Number of customers are falling (35 in FY23 vs. 47 in FY21). Revenue share from top-10 customers
But customer concentration has increased significantly
Revenue from Top 10 customers % of total revenue
Number of customers 93.24%
8000 7578 94%
Order book concentration by top 10 customers (%) 6718
7000 93%
60 98% 5704
50 96.57% 6000 93%
50 47 96%
5000 92%
In Rs. mn
No. of customers
94%
40 93.35% 35 4000 92%
91.08%
92% 90.83%
30 3000 91%
90%
20 88.99% 2000 91%
88%
10 1000 90%
86%
0 84% 0 90%

Revenue contribution from top 10 customers

is highest for Cyient DLM as compared to its
peers

Focusing on being an end-to-end integrated EMS player

Earlier, Cyient DLM used to perform build to print (B2P) services in which clients We expect increasing revenue in B2S
provided the designs and it manufactured them as per the customer’s specifications. will lead to new customer addition/ new
Now its focus has strategically shifted to being an integrated EMS player offering build product addition/ new opportunity for
to specification (B2S) services as well. Cyient provides a complete range of service – the business and thus leading to strong
product engineering, design and build services; basically, from concept to qualification. growth over next 2-3 years
B2P and B2S split in total revenue; B2S CAGR at 35% over FY21-23 vs. B2P at 15%
Build-to-print (B2P) Build-to-specification (B2S)
9000 CAGR(FY21-23):
B2P- 15% 17
8000
B2S- 35%
7000 22
6000 9
Cyient DLM has tremendous upside
in Rs. mn
5000
potential in the B2S business because of
4000 8304 parental support in providing a design
7184
3000 6271 team
2000
1000
0
FY21 FY22 FY23
Plans to establish its own design competency to raise its margins

Cyient DLM is strategically focused on strengthening its engineering competency to
augment its existing range of build-to-specification (B2S) services. Currently, B2S
services benefit from the design capabilities of its parent, Cyient Limited, and its
dedicated design team. However, Cyient DLM has plans to establish its own design
competency, which will enhance its margin profile. In the interim, it aims to leverage
the parent’s design team to offer diverse solutions to customers and target new
clientele.
Building scale across industries

Cyient expects to develop capabilities across industry segments by gaining wallet share
with existing customers and acquiring more strategic clients. It will gain by augmenting Cyient will look to increase share of B2S
contracts and complex assemblies in
its core capabilities and building scale by taking advantage of global players shifting
overall mix, which will garner higher
their supply chains to India and setting up manufacturing facilities in India by leveraging
margins
cost advantages under various government schemes. It will continue to strengthen its
position in A&D, medical and industrial segments. It will look to build scale and
undertake strategic projects, thus enhancing its order book.
Cyient DLM is an integrated EMS provider with a wide-range of services

Service-wise revenues (in Rs mn) FY21 FY22 FY23
PCBA 3800 4565 5210
as a % of sales 60.5% 63.3% 62.6%
Cable Harness 39 64 114
as a % of sales 0.6% 0.9% 1.4%
Box builds 2291 2410 2697
as a % of sales 36.5% 33.4% 32.4%
Others 150 167 300
as a % of sales 2.4% 2.3% 3.6%
Total 6281 7206 8321

Manufacturing capabilities – can scale up its revenue 3x

• Cyient DLM has three manufacturing facilities located at Mysuru, Hyderabad, and PCBA has consistently accounted for the
Bengaluru. majority of revenues, with steady
• Mysuru and Hyderabad have a total of six Surface Mount Technology (SMT) lines revenue growth. The contribution of
and four plated through hole (PTH), which are core processes for the assembly of cable harness and box builds is still
PCBs. small, and both experienced gradual
growth
• The facilities operate in two shifts per day, with the option of increasing that to
three shifts per day in order to increase productivity.
Currently, a significant portion of Cyient's contribution is attributed to the Mysuru

facility, operating at c.38% capacity for PCBA and only around 3% for cable harness.
Cyient already has the necessary capacity to scale up revenue in response to favourable
industry trends – a key advantage.
Cyient has sufficient capacity to scale up its revenues 3x from current levels
Manufacturing capacity FY21 FY22 FY23
Mysuru
PCBA (mn components p.a.) 431 449 449
CUF (%) 46.5% 54.5% 38.4%
Cable harness (number of cables p.a.) 697,360 2,461,360 4,225,360 CUF for PCBA in Mysuru varied while for
CUF (%) 60.7% 6.8% 3.3% cable harness and box builds, it fell.
Box builds (number of boxes/ p.a) 10,900 10,120 13,420 Mysuru and Hyderabad box-builds
CUF (%) 96.4% 94.9% 98.7% capacity saw high and consistent
Hyderabad capacity utilization
PCBA (mn components p.a.) 500 500 500
CUF (%) 7.1% 9.1% 7.6%
Box builds (number of boxes/ p.a) 245,000 180,000 289,000
CUF (%) 97.9% 93.0% 99.9%
It plans on enhancing efficiency of manufacturing operations by increasing focus on

digitalization and automation, resulting in increased operational efficiency and
providing more agility and flexibility to its clients.
Revenue contribution from manufacturing facilities Yet to reach 50% capacity utilization, available capacity will
support growth
Mysuru Hyderabad Bengaluru
Mysore Hyderabad
100% 0.51% 0.21% 0.60%
98% 2.46% 0.7
Overall Capacity utilization
96% 0.6 9.13%

9.14% 8.65%
% of Revenue
94% 0.5 7.12%

92% 0.4 7.61%
90% 97.02% 0.3 54.46%
88% 0.2 46.54%
90.65% 90.75% 38.43%
86% 0.1
84% 0
At 50% capacity; geared to quickly scale up in response to demand

Tier-2 companies that supply products to Tier-1 companies have to cater to a growing
emphasis on localization, innovative design, and R&D. However, since these could
prove costly, these tier-2 companies have begun to increasingly use EMS services a
strategy to avoid high costs. Cyient DLM is strategically positioned to capitalize on the
situation as it has recognised this market trend and favourable industry tailwinds well
in time. It already has the manufacturing strength needed for production at scale,
which provides a good foundation to seize emerging opportunities.

Cyient’s DLM: Global OEMs, diverse industry presence
Cyient has presence across industry verticals and provides services to major global
OEMs from countries such as USA, France and Israel
Industry mix from FY20-25; we expect contribution from We expect export book to continue to be a major
aerospace and industrial to increase contributor in overall revenue
Aerospace Defense Medical Industrial Others Export Revenue % of Revenue
120% 6000 70%

2% 2% 2% 1% 1% 1% CAGR:47% 4,968
100% 5000 60%
11% 14% 60%
18% 25% 45% 50%
80% 31% 34% 4000
% of Revenue
30% 22% 37% 3,241
Rs. in mn
19% 40%
16%
60% 13% 11% 3000
2,295 30%
40% 46% 47% 38% 33% 31% 2000
42% 20%
20% 1000 10%
15% 20% 22% 23%
14% 14%
0% 0 0%
FY20 FY21 FY22 FY23 FY24E FY25E FY21 FY22 FY23
Source: PhillipCapital India Estimate, Company Data Source: PhillipCapital India Research, Company Data
Indian Industry CAGR over FY22-26E for key segments.

Industry CAGR (FY22-26E)
0.5
Segments like A&D, medical Industrial is
expected to witness a CAGR of
0.4 38%/42%/19% over Fy22-26E. Cyient
42%
38% DLM will be the major beneficiary of this
0.3 industry tailwinds
29%
0.2
19% 18%
0.1
0
Automotive Industrial Telecom Medical A&D
Segmental wise analysis
Key industries catered by Cyient DLM

1. Aerospace and defence, 58% of revenue: strong industry tailwinds

• Global A&D industry (US$ 720bn in 2021) CAGR is seen at 6% to touch US$ 960bn
by 2026.
• India is slowly emerging as a critical market for defence aircrafts as India continues Key clients include Bharat electronics,
to improve its aerial capabilities and modernizing its existing fleet of aircrafts. The Honeywell international and Thales
A&D industry typically encompasses civil and defence aviation and defence global services. Each of them
contributing 11%, 9% and 13% of overall
equipment.
revenue respectively
• Aerospace and defence are one of the most complex and specialized industries in
electronics manufacturing. Applications here are safety-critical with a negligible Further, Bharat electronics has grown
margin for error and thus require superior technical expertise and engineering its revenue at CAGR of 12% over FY23-
capabilities from EMS players. Most of the orders are in the Low Value High Margin 17 to reach Rs. 1,80,152mn
(LVHM) category, because of the critical nature of the products, which requires a
high degree of technical expertise.
• Aerospace and defence industry of India is expected to witness CAGR of c.38% over
FY22-26E.
Products manufactured by Cyient DLM under A&D

Growth drivers for A&D segment:
• Cyient DLM has won a large order worth Rs 7bn from BEL in the defence segment • Favourable schemes like the UDAN-
in FY23. Leading commercial aerospace companies such as Boeing, Raytheon, RCS have been launched by the
Collins, and SpaceX, as well as emerging drone start-ups, will provide growth in the government in aerospace
• The Defence Ministry at 'Aero India
mid-to-long term for Cyient.
2021' announced reduction of defence
• Cyient’s A&D practice has been rated in the leadership zone by the Zinnov Zones imports by US$ 2bn in 2022
for product engineering services report for five consecutive years.
• According to Airbus and Boeing, India will require over 2,200 new aircraft over the
next 20 years to meet demand. Because of its unprecedented growth, electronics Big opportunity
has emerged as a strategic and profitable industry in the aerospace segment. for Cyient DLM
• Aerospace revenues CAGR for the company should be 55% over the next two years
to touch Rs 2.6/4.0bn in FY24/25 with gross margins at 17% in FY24/25; order
CAGR at 50% over FY23-25.
• We expect its defence revenues CAGR of 34% over the next two years to reach Rs
3.8/5.6bn in FY24/25 with gross margins at 21% in FY24/25. Order book CAGR of
37% over FY23-25.

Aerospace revenue CAGR of 55% over FY23-25E Aerospace order book CAGR of 50% over FY23-25E
Revenue - Aerospace Growth (YoY) Aerospace
4500 CAGR: 55% 70% 12000 10,996

4025 CAGR: 50%
4000 60% 10000
3500
50% 8,051
3000 2632 8000
Rs. in mn
in Rs mn
2500 40%
6000 4,874
2000 1667 30%
1500 4000
952 1018 20%
1000 657 1,700
2000 1,374
500 10%
0 0% 0
FY20 FY21 FY22 FY23 FY24E FY25E FY21 FY22 FY23 FY24E FY25E
Source: PhillipCapital India Estimate, Company Data Source: PhillipCapital India Estimate, Company Data
Defence revenue CAGR of 34% over FY23-25E Defence order book CAGR of 37% over FY23-25E
Revenue - Defense Growth (YoY) Defence
6000 CAGR: 34% 5586 50% 20000

CAGR: 37% 17,303
18000
5000 40%
16000
3845 13,300
14000
4000 3371 30%
3132 12000
In Rs. mn
in Rs mn
3000 2639 20% 10000 9,155

2105 8000
2000 10% 5,629
6000
3,807
4000
1000 0%
2000
0 -10% 0
2. Industrial, 25% of revenue: riding on manufacturing theme

• Industrial electronics generally refers to the use of electronics for power and
control systems, outside of the field of communications.
Key client includes ABB Inc. contributing
• Most large manufacturing companies are investing heavily in the technological up-
a significant share of 21% of overall
gradation of their facilities by adopting digitization and industry 4.0 concepts. This revenue.
will increase demand for Industrial electronics products which in turn will boost
the EMS industry.
• India is an attractive hub for foreign investments in the manufacturing sector.
Several brands have set up or are looking to establish their manufacturing bases
in the country. The manufacturing sector of India has the potential to reach US$
1tn by FY25. Cyient DLM has the manufacturing capability to capitalize on
industrial digitalization and increase the share of industrials in its revenue mix
Products offered by Cyient DLM under industrial

• We expect industrials revenue CAGR of 71% to reach Rs 3.6/.1bn in FY24/25 with

gross margins at 28%. Order book CAGR of 48%. Key drivers for growth:
• Government mission to increase EV
Sub-segments in industrials penetration
• Field control devices • Fame II scheme extended until 2024
• Semiconductor manufacturing scheme
• Actuators
• An increase in demand for digital
• Building tech technologies and smart solutions from
• Intelligent field modules process industries
• Telecom electronics
• Network infrastructure
• Data centres
• Automotive electronics
• EV
Industrials revenue CAGR of 71% over FY23-25 Order book CAGR of 48% over FY23-25
Industrial - Revenue Growth (YoY) Industrial
7000 CAGR: 71% 120% 16000

6109
100% CAGR: 48% 13,361
6000 14000
80% 12000
5000 10,181
3661 60% 10000
in Rs mn
Rs. in mn
4000
40% 8000
3000 6,101
2087 20% 6000
2000
1041 0% 4000
838 714 1,737
1000 -20% 2000 1,031
0 -40% 0
3. Medical, 16% of revenue:

• The adoption of negligibly invasive surgery methods, increasing acceptance of Key clients include Molbio diagnostics
surgical robots, and the gradual shift of some procedures to outpatient settings pvt. Ltd. contributing 3% of overall
will continue to drive the uptake in some medical-devices categories, including revenue.
consumables. Mobio has seen CAGR of 324% over FY
• Currently, EMS companies are pursuing the hugely under-penetrated medical 17-21 to reach Rs. 12,735mn
electronics market in India for substantial growth opportunities. Cyient offers
Key drivers for growth:
products and services in patient-care monitoring systems and diagnostics
• National Medical Devices Promotion
equipment.
Council promoting the local
• Most new medical companies are like new communications equipment companies manufacturing of high-end medical
– they are disinclined to manufacture products they design and prefer to partner devices
with an EMS supplier – so this segment is usually very promising for EMS. • Growing adoption of minimally
invasive surgery techniques and
surgical robots
Products offered by Cyient DLM under medical
• For Cyient, we expect revenues of Rs 1.5/2.0bn in FY24/25 with gross margins of

26%. Order book CAGR of 34%.

We expect revenue CAGR of 23% over FY23-25 Order book CAGR of 34% over FY23-25
Medical - Revenue Growth (YoY) Medical Growth (YoY)
CAGR:23% CAGR:34%
2500 140% 8000 50%
7,059
2038 120% 7000 45%
2000 1853
100% 40%
1616 6000 5,364
1463 80% 35%
1500 1353 5000
in Rs mn
30%
In Rs. mn
60% 3,955
865 40% 4000 25%
1000 2,674 2,697
20% 3000 20%
0% 15%
500 2000
-20% 10%
1000 5%
0 -40%
FY20 FY21 FY22 FY23 FY24E FY25E 0 0%
FY21 FY22 FY23 FY24E FY25E
Source: Company Data, PhillipCapital India Estimate Source: Company Data, PhillipCapital India Estimate
Charting a course – Cyient’s internal strategies
Reducing supplier Enhancing capabilities in Superior supply chain Inorganic expansion

concentration after-market services ecosystem and better through geographical
and value-added services operational efficiencies expansion and client
proximity, further
strengthen capabilities
and gain access to target
customers
Reducing supplier concentration

• For Cyient, raw materials constitute c.80% of total expenses in FY23 and thus any
delay/disruption due to obligations not fulfilled by suppliers will affect its clientele.
To overcome this, Cyient has multiple vendors for each component and does not
rely on single sources for each part.
• In fact, it sources raw materials from as many as 776 active third-party suppliers,
including overseas suppliers from United States of America, Europe, Israel, China,
and Singapore and other Asian countries – which constitute 63% of its total
vendors.
Supplier concentration has reduced to 43% in FY23 from 49% in FY21 Peer comparison: Top 5 Supplier
Top five suppliers Top 10 suppliers concentration
0.6 Supplier Concentration - Top5

53%
% of total cost of raw materials
49%
35% 31.5% 30.8%
0.5 43%
30%
22.8%
0.4 25%
% of RM
44%
consumed
20%
0.3 37% 15%
10%
31% 5%
0.2
0%
Cyient DLM
Technologies Ltd
Technologies Ltd
0.1
Kaynes
Avalon
0
FY21 FY22 FY23

Enhancing capabilities in after-market services and value-added services

• Higher focus on aftermarket services and increase in value addition will result in
higher customer stickiness. Such efforts include providing repairs and
maintenance services as well as value addition through reverse engineering, value
engineering and design upgrades.
• Cyient also plans to enhance its offerings in cable harness, precision mechanics
and additive manufacturing and will also explore opportunities in OSAT
(outsourced semiconductor assembly and test) services.
• It believes such diversification and augmentation will help in enhancing margins
and increase brand visibility.
Superior supply chain ecosystem and better operational efficiencies

• Cyient intends to better its operational efficiency through increased adoption of
automation and better client management.
• It will also look at strengthening customer relationships.
• It believes its high focus on digitization and automation will increase its
operational efficiency and provide more flexibility to its customers.
• Optimizing its supply chain ecosystem will result in reduction of logistics cost and
reduction in time to market.
Inorganic expansion through geographical expansion and client proximity, further

strengthen capabilities and gain access to target customers
• Cyient intends to enhance its presence in North America to build greater proximity
to a few key clients, which will help in strengthening existing relationships and let
the company take part in more strategic projects in the segments it operates in.
• It aims to fortify existing capabilities in high-margin low-volume solutions in safety-
critical electronics for A&D, medical and industrial including in PCBAs, cable
harnesses, box builds sub-system assembly, testing services and re-engineering
and aftermarket services – this will augment revenues, enhance margins, improve
cost controls thus increasing profitability.


Revenue CAGR of 47% over FY23-25 because of increasing It has an industry leading order book; CAGR of 42% over the
contribution from A&D and industrials next two years
Revenue Growth (YoY) Order book Order inflow
20000 60% 60000

17880
18000 49196
CAGR: 47% 50% 50000 CAGR: 42%
16000
14000 37235
11702 40% 40000
12000
in Rs mn
in Rs mn
10000 8320 30% 30000
24325
8000 7205
6280
20% 20000
6000 4571 12030
4000 9061
10% 10000
2000
0 0% 0
FY20 FY21 FY22 FY23 FY24 FY25 FY21 FY22 FY23 FY24E FY25E
We expect gross margin to improve by 40bps due to better EBITDA CAGR of 55% over FY23-25; Margin to expand by 130
revenue mix bps due to revenue mix
Gross margin GM (%) EBITDA OPM (%)
4500 4103 30.0% 2500 14.0%

CAGR: 48% CAGR: 55%
4000 2102
25.0% 11.7% 11.8% 12.0%
24.5% 2000
3500 10.5% 10.8%
22.5% 22.7% 22.9% 10.0%
3000 20.2% 21.1% 2660 20.0%
1500
Rs. in mn
in Rs mn
2500 1260 8.0%

1868 15.0% 7.3%
2000 1766
1000 840 878 6.0%
1327
1500 10.0%
922 459 4.0%
1000 500 3.0%
5.0% 2.0%
500 137
0 0.0% 0 0.0%
FY20 FY21 FY22 FY23 FY24E FY25E FY20 FY21 FY22 FY23 FY24 FY25
Significant improvement in profitability by increasing share Cyient has sufficient capacity to meet growing order book;
of high margin segments and taking on more B2S capex will majorly for backward integration and strategic
acquisitions
PAT PATM (%)
7.5% Gross block CAPEX
1600 8.0%
CAGR: 105%
1336 7.0% 3500 3251
1400
5.5% 5.6% 2851
1200 6.0% 3000
3.8% 5.0%
1000 2500 2151
2011 2069
4.0%
in Rs mn
in Rs mn
800 655 2000

1.9% 3.0%
600 1500
398 2.0% 1032
400 317 830
1.0% 1000 700
200 118 400
0.0% 500 274
-1.5% 84 76
0 -1.0% 0
-200 FY20 FY21 FY22 FY23 FY24E FY25E -2.0%
-67 FY20 FY21 FY22 FY23 FY24E FY25E

We expect RoE and RoCE profile to improve

RoE RoCE
60
50 51.6
40
30 31.4
20 16.0 18.0
19.6 10.8
10 3.8 13.4 14.6 13.5
7.7
0 As a result of significant increase
FY20 FY21 FY22 FY23 FY24E FY25E in shareholders fund due to public
-10
issue
-20
-26.1
-30
DuPont analysis
Net profit margin (%) (1.5) 1.9 5.5 3.8 5.6 7.5
Asset turnover (x) 1.6 2.3 1.9 1.6 1.2 1.7
RoE (%) (19.0) 31.1 51.1 16.0 7.6 13.5
Source: Company Data, PhillipCapital India Estimate
We expect RoE to expand to normal levels over two years due to margin expansion and
higher revenue growth.
Debt:EBITDA will see strong improvement as it plans to FCF to PAT trends; we expect FCF generation over next 2-3
repay Rs. 1609.11mn from IPO proceeds years due to strong growth, ease of working capital and
operating leverage
Debt:EBITDA
FCF to PAT
19.0 12
20
10.0
18 10
16
14 8
12
6
10
8 4
5.1
6 1.4
3.5 3.6 2 1.0
4 0.6
1.2 0.0
2 0.3 -0.7
0
0 FY20 FY21 FY22 FY23 FY24E FY25E
FY20 FY21 FY22 FY23 FY24E FY25E -2

We expect sharp reduction in debt to continue improving return ratios

Debt: Equity
12
10.2
10
8
6.2
6
3.8
4
1.6
2
0.2 0.1
0
Cyient has very high working capital at present, which should see some reduction
ahead, once the component ecosystem develops and supply-chain normalizes
Debtor (days) Inventory (days) Creditor (days)
250
206
200 181 180
152 160
138
Axis Title
150 130 130 125

118 109
96
100 85 76 70 70 69
43
50
0
Outlook and valuation:

Over the next 2-3 years, Cyient DLM will see strong revenue growth led by:
• Strong order book of c.Rs 24bn, which is 3x FY23,

• Customer stickiness will provide higher revenue visibility
• Current capacities, which can cater to most of its order book,
• Its expanding value-added segment, plus move towards OSAT, which will add to
margins and revenue,
• Higher A&D portfolio making it an expert player in the industry,
• Increasing customer concentration, which means high focus on value-added
customers, and
• Strong industry tailwinds.
All these factors will lead to Revenue/EBITDA/PAT CAGR of 47%/55%/105% over

FY23-25 with OPM of 10.8%/11.8% in FY24/25 and yoy earnings growth of
106%/104%.
Based on this, robust order book, high earning CAGR, and improved working capital,
we value Cyient DLM at 35x on FY25 EPS (the stock trades at 28x FY25 EPS at CMP).
We initiate coverage with a BUY rating and a target of Rs 622.

Company overview
Company background and operations
• Originally incorporated as ‘Rangsons Electronics Private Limited’ in 1993 at
Mysuru, Karnataka, for manufacturing all kinds of electronic assemblies and to
provide related services.
• Post-acquisition of 74% equity share capital by Cyient Limited, it changed its name
to ‘Cyient DLM Private Limited’ in 2016. In 2019, Cyient Limited acquired the
remaining 26% equity share capital.
• Cyient DLM’s business model starts from product concept design and focuses on
developing high-mix, low-to-medium-volume complex systems. It is one of the few
EMS companies in India catering to highly regulated industries
• It operates in aerospace, defence, medical and industrial. It believes in developing
long standing relationship with its clients as the average relationship with top
customers is of 11 years.
Manufacturing facilities
• Cyient DLM’s manufacturing set up is spread across three cities namely Mysuru,
Hyderabad, and Bengaluru.
• At its Mysuru facility, it undertakes PCBA, cable harnesses, and box-builds for
aerospace and defence, which make up the maximum share of the revenues.
• The Hyderabad facility, which is in an SEZ undertakes PCBA, cable harnesses and
box-builds operations for non-aerospace and defence industries.
• At its Bengaluru facility, the company undertakes manufacturing of high-precision
components.

Revenue break up
o c.99% of revenue comes from B2S and 60% of revenues comes from exports.
o In FY19/20/21, 37%/45%/60% of revenues came from exports and 91%/93%/ 91%
came from top-10 customers.
Industry recognition, growth prospects

o It is growing through consolidation and partnerships.
o Received accreditation from NADCAP for "Electronics - Cable and Harness
Assemblies" and "Electronics Printed Board Assemblies".
Portfolio, segments:
o Mostly all the products in industrial, medical, aerospace and defence segments are
high-margin low-volume products.
Key strengths
• Enabled with manufacturing infrastructure, stringent quality, diverse in-house
capabilities and robust supply chain, to provide high quality end-to end
integrated solutions to its clients.
• Parentage of promoter, Cyient Limited, and a long history of industry expertise.
• Ability to provide integrated engineering solutions with capabilities across the
product value chain.
• Long-standing relationships with customers – an opportunity for increased wallet
share.
B2S led by promoter

Cyient DLM is focused on providing B2S services to its clients. It involves the promoter’s
design team, which designs basis requirements and specifications of the client. Cyient
DLM provides inputs in terms of ‘design for manufacturability’ and ‘design for testing’.
This is a high-margin business and it is focused on setting up its own design competency
to increase its current mix of B2S service.
Product offerings
PCB Assembly
PCB assembly is the process of connecting electronic components onto PCBs.
There are two main categories of assembly: Surface Mount Device and Plated through
Hole assembly.
It has the capabilities to manufacture a variety of simple and complex PCBAs, such as
radio frequency circuit boards, IoT boards, programmable logic control (PLC) boards,
central processing unit (CPU) boards and input/output (I/O) modules. Its PCBAs are
NADCAP certified.
Cable harnesses:
This involves the process of assembly of electrical cables or wires. Its cable-harnesses
solutions are also accredited by NADCAP.
Steps involved in the manufacture of cable harnesses:

• Cutting
• Stripping
• Crimping / tinning / soldering / splicing
• Connector installation / labelling / braiding
• Inspection
• Testing – continuity / insulation resistance / hipot / pull test / retention

Box Builds
Box builds can be anything from a simple PCBA housed in a small enclosure, to a cabinet
housing a complex electromechanical system. The box build process involves enclosure
fabrication, assembling the various PCBAs and cables harness assemblies, installation
of sub-assemblies and components and routing of cabling or wire harnesses.
Cyient DLM assembles box builds ranging from very simple to complex devices with a
wide range of applications as outlined below:
• Aerospace application: Avionics engine control, cockpit communication, auxiliary
power supply unit, door control unit.
• Defence applications: RADAR electronics, communication, computers, etc.
• Medical applications: x-ray electronics, diagnostic equipment, ECG, ultrasound
scanners, etc.
• Industrial applications: oil and gas measurement equipment, fuel dispensing
controllers, IoT controllers, etc.
Cyient DLM also manufactures a wide range of complex PCBs:

• CPU board: A CPU card is a printed circuit board (PCB) that contains the central
processing unit (CPU) of a computer.
• Power electronics boards: Used in a variety of applications, such as power
generation, power transmission, power distribution, power control.
Value added and after-market services

• Obsolescence management: It advises on any components that need to be
replaced due to technology upgradation and non-availability of the relevant
component.
• New product introduction: It involves taking a product idea from the
conceptualisation stage to making the product available for use or production.
• Value engineering: Can be defined as an organized effort directed at analysing
designed building features, systems, equipment, and material selection.
• Localisation: Process of adapting a particular product to the local needs of a
particular geography or culture with a focus on leveraging locally available
components to build the product.
• Logistics and supply-chain management: Helps clients manage their supply chain
requirements from sourcing to logistics to storage solutions.
B2P and B2S

Build-to-print (B2P) model
• In this, the design for the project is provided by clients and Cyient DLM
manufactures the product based on the provided design.
• Typically, the client provides bill of materials and drawings and Cyient is only
responsible for producing the part.
Some of the key products and projects manufactured under B2P model are:
o Natural gas analyzers – flow monitoring systems used in oil and gas applications
o Airport lighting switch system circuit card assembly
o Magnetic resonance (MR) system
o Cockpit electronics
Build-to-specification (B2S)
In this, the client provides with its requirements and specifications, which Cyient
Limited’s (the Promoter) design team designs and then Cyient DLM proceeds to
develop based on such requirements and specifications.
Some of the key products and projects developed under B2S model are:
o Cargo door control units
o USB drives

Experienced/diversified board will drive successes

Strong team with prominent independent directors
Name Designation Joining Date to Board
Ganesh Venkat Krishna Bodanapu Chairman, Non- Executive &
February 4, 2015
Non-Independent Director
Rajendra Velagapudi Managing Director April 25, 2017
Shrinivas Kulkarni Chief Financial officer January 02, 2023
Anthony Montalbano Chief Executive Officer January 02, 2023
Venkat Rama Mohan Reddy Bodanapu Non-Executive, Non–Independent Director December 27, 2022.
Vanitha Datla Independent Director December 13, 2022
Jehangir Ardeshir Independent Director December 13, 2022
Pillutla Madan Mohan Independent Director December 27, 2022
Suchitra R C Additional Director & Vice President
October 10, 2022
Operations
Source: Cyient DLM RHP, PhillipCapital India Research
Key managerial personnel – background, industry experience

Mr. Ganesh Chairman, Non- • Bachelor's degree of science in electrical Associated with Cyient DLM’s promoter since 2003.
Venkat Krishna Executive & engineering from Purdue University and
Bodanapu Non-Independent • Master's degree in business administration from
Director the J.L Kellogg School of Management.
Mr. Rajendra Managing Director • Bachelor’s degree in technology (Mechanical), Previously associated with:
Velagapudi • Master’s degree in automobile engineering and • Simpsons Co. Ltd. for two years
degree of master of science in design of • Bajaj Tempo Limited
rotating mechanics • Bharat Earth Movers for over 8 years
Mr. Shrinivas Chief Financial • Bachelor’s degree in science from Karnataka Previously associated with:
Kulkarni officer University, Dharwad and • Ind- Telesoft Private Limited,
• Associate member of Institute of Cost • Intel Corporation,
Accountants of India • Intel India Private Limited,
• EMC Software and Service India Private Limited
and
• Sasken Communication Technologies Ltd.
Mr. Anthony Chief Executive • Bachelor’s degree of arts from Western Previously, he as associated with:
Montalbano Officer Washington University and • Flex, USA for a period of 10 years,
• Master’s degree of business administration from • HCL America Inc. and
UCLA. • Wipro Limited
Mr. Venkat Non-Executive, • Bachelor’s degree in engineering from Faculty of He has been associated with:
Rama Mohan Non–Independent Engineering, Andhra University • HCL Limited and
Reddy Director • Master’s degree of technology from Indian • Electronic Industries Association of Andhra
Institute of Technology, Kanpur. Pradesh.
Ms. Vanitha Independent • Bachelor’s degree of arts from Faculty of Arts, She is currently working with:
Datla Director Osmania University • Elico Limited,
• Post graduate diploma in business administration • Elico Healthcare Services Limited
from ICFAI Business School. • Eliscription Private Limited and
• CFA Program of the Institute of Chartered • Elico Mechoptronix Private Limited.
Financial Analysts of India She is also an Independent Director in Visaka
Industries Limited.
Mr. Jehangir Independent • Bachelor’s degree of technology in agricultural Previously, he as associated with:
Ardeshir Director engineering from Indian Institute of Technology, • Tata Iron & Steel Co. Limited,
Kharagpur and • Tata Sons Limited,
• Post graduate diploma in management in • Tata Teleservices Limited,
agricultural and rural management from IIM, • Terex India Private Limited and
Bangalore • Forbes Marshall Private Limited
Mr. Pillutla Independent • Bachelor’s degree of engineering (honours) from He is currently the dean of Indian School of Business.
Madan Mohan Director The Birla Institute of Technology & Science and
• Master’s degree of science from University of
Illinois
Source: Cyient DLM RHP, PhillipCapital India Research

Financials
Net sales 7,205 8,320 11,702 17,880 Pre-tax profit 398 317 876 1,786
Other operating income - - - - Chg in working capital (329) (229) (774) (1,220)
Employee expenses 517 647 873 1,197 Cash flow from operating activities 485 521 266 431
Other Operating expenses 409 343 527 805 Capital expenditure (84) (76) (700) (400)
EBITDA (Core) 840 878 1,260 2,102 Chg in investments 7 (892) (350) (250)
Margin, % 11.7 10.5 10.8 11.8 Cash flow from investing activities (324) (1,418) (987) (587)
Depreciation 193 194 237 285 Free cash flow 334 (666) (563) (85)
EBIT 648 684 1,024 1,817 Equity raised/(repaid) - 889 223 -
Growth, % 135.6 5.6 49.7 77.5 Debt raised/(repaid) 591 57 (1,600) (1,000)
Interest paid 220 315 211 94 Cash flow from financing activities 461 740 4,109 (1,094)
Other Income 80 63 63 63 Net chg in cash 622 (157) 3,388 (1,250)
Pre tax profit 507 432 876 1,786
Tax provided 109 114 221 450
Profit after tax 398 317 655 1,336
Valuation Ratios
Net Profit 398 317 655 1,336 Per Share data
Growth, % 236.8 (20.3) 106.5 103.9 EPS (INR) 291.1 6.0 8.7 17.8
Net Profit (adjusted) 398 317 655 1,336 Growth, % 236.8 (97.9) 45.1 103.9
CEPS (INR) 432.2 9.7 11.9 21.6
CFPS (INR) 355.1 9.9 3.5 5.7
Cash & bank 1,218 1,676 5,064 3,814 Return ratios
Loans & advances 61 90 90 90 ROIC (%) 8.8 6.8 20.3 22.6
Other current assets 512 895 895 895
Investments 3 895 1,245 1,495 Asset turnover (x) 4.2 5.2 5.7 8.2
Less: Depreciation (377) (572) (808) (1,093) Working capital/Sales (x) 3.7 3.2 1.7 2.7

Non - current liabilities 2,932 3,145 1,545 545 Interest cover (x) 2.9 2.2 4.9 19.3
Paid - up capital 14 529 752 752 Net debt/Equity (x) 2.2 0.7 (0.4) (0.3)
Reserves & surplus 757 1,450 7,802 9,137
Minorities - - - - Valuation
Shareholders’ equity 771 1,979 8,554 9,889 PER (x) 1.7 82.8 57.1 28.0
Total equity & liabilities 7,769 11,047 17,395 19,714 PEG (x) yoy growth 0.0 (0.8) 1.3 0.3
Price/Book (x) 0.9 13.3 4.4 3.8
EV/Net sales (x) 3.9 3.3 1.9 1.3
EV/EBITDA (x) 33.3 31.6 18.1 10.9
EV/EBIT (x) 43.2 40.6 22.2 12.7

Rating Methodology
We rate stock on absolute return basis. Our target price for the stocks has an investment horizon of one year.
We have different threshold for large market capitalisation stock and Mid/small market capitalisation stock.
The categorisation of stock based on market capitalisation is as per the SEBI requirement.
Large cap stocks

Rating Criteria Definition
BUY >= +10% Target price is equal to or more than 10% of current market price
NEUTRAL -10% > to < +10% Target price is less than +10% but more than -10%
SELL <= -10% Target price is less than or equal to -10%.
Mid cap and Small cap stocks

Rating Criteria Definition
BUY >= +15% Target price is equal to or more than 15% of current market price
NEUTRAL -15% > to < +15% Target price is less than +15% but more than -15%
SELL <= -15% Target price is less than or equal to -15%.
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Phillip Capita On EMS Industry The Story of Local Manufacturing

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INSTITUTIONAL EQUITY RESEARCH

Page | 2 | PHILLIPCAPITAL INDIA RESEARCH

Electronics: A big opportunity still to play out ........................................................................... 4

Page | 3 | PHILLIPCAPITAL INDIA RESEARCH

Electronics: A big opportunity still to play out

2000 880 players, which will result in a CAGR of

India’s electronics industry CAGR of c.20% over CY23-27

Total electronics market in India (domestic manufacturing + imports)

Source: PhillipCapital India Research, Cyient DLM RHP

Page | 4 | PHILLIPCAPITAL INDIA RESEARCH

Why is India attractive for manufacturing?

Source: PhillipCapital India Research, Cyient DLM RHP

Favorable Government Policies and Programs

Source: PhillipCapital India Research, Industry Data

Page | 5 | PHILLIPCAPITAL INDIA RESEARCH

Atmanirbhar: Make in India to Make for the World

Key drivers that are assisting the rapid

India soon to be an Electronics Export Hub

Exports CAGR Production Consumption

Source: PhillipCapital India Research Estimate, Industry data

Page | 6 | PHILLIPCAPITAL INDIA RESEARCH

Electronics exports trend FY18-27 Electronics imports trend FY18-27

9000 8078 3500

5000 FY18 – FY23: 35% 4151 2000 1685 1736

We expect strong exports from India

Page | 7 | PHILLIPCAPITAL INDIA RESEARCH

What we envisioned, now thriving in vibrant actuality

India moving towards Atmanirbhar

Page | 8 | PHILLIPCAPITAL INDIA RESEARCH

A big opportunity for Indian EMS players

2021 – Rs 53,272bn 2026E – Rs 64,314bn

❖ Specialized EMS services

Indian EMS Industry

Source: PhillipCapital India Research, Company Data

Page | 9 | PHILLIPCAPITAL INDIA RESEARCH

Government incentives such as Investments by local and

Source: Company data, PhillipCapital India Research Estimate

Policy initiatives taken by India towards incentivizing localization in India

Long-term goals in electronic manufacturing

Short-term goals in electronics manufacturing

Low Maturity Medium Maturity High Maturity EMS Capability

Page | 10 | PHILLIPCAPITAL INDIA RESEARCH

Deep diving into India’s EMS industry

ODM vs. contract manufacturing in India

Source: Company data, PhillipCapital India Research Estimate

EMS market segmentation by HVLM vs. LVHM

Page | 11 | PHILLIPCAPITAL INDIA RESEARCH

Indian EMS market split (HVLM vs. LVHM)

4000 • Most companies work in the HVLM

Source: PhillipCapital India Research Estimate, Company Data

Mobile phones (R.H.S) Cons. electronics (R.H.S)

Page | 12 | PHILLIPCAPITAL INDIA RESEARCH

Industry >100 – Captive

Page | 13 | PHILLIPCAPITAL INDIA RESEARCH

Top global and Indian companies in the EMS segment in India

Roadmap to manufacture US$ 300bn electronics by FY26

Roadmap to manufacture US$ 300bn electronics by FY26

Page | 14 | PHILLIPCAPITAL INDIA RESEARCH

PCBA: A game-changing opportunity

The business opportunity

Global PCBA market for targeted segments

Global PCBA Rs13120bn

Source: PhillipCapital India Research Estimate, PCBA reports