The Electronics Manufacturing Services (EMS) sector is in focus after the government’s approval of the Semicon 2.0 programme and the Mobile Phone Manufacturing Scheme. In Q1FY27, the top eight EMS companies reported a 27% year-on-year (YoY) increase in revenue, while EBITDA grew 29% and profit after tax (PAT) increased 25%. Despite this, Nuvama expects the sector to continue facing margin pressure.
The FY27 domestic mobile volumes are also expected to remain broadly flat at 32–33 million units. Here is why.
More price hikes expected ahead, input costs squeeze margins
A quick look at the earnings of the EMS sector stocks indicates that the Q1FY27 financials was largely driven by pricing hikes in the mobile and room air conditioner (RAC) segments.
Companies raised prices by 5-15% during the quarter to pass on higher input costs. Nuvama expects further price hikes are expected in the coming quarters.
Despite price hikes, higher raw material costs continued to weigh on profitability and margins are expected to remain under pressure as the pass-through of higher costs is happening with a lag. “Rising raw material cost inflation (memory chip, copper clad laminate) due to ongoing West Asia crisis, wage revision and rupee depreciation continued to dampen EBITDA and PAT growth of EMS companies.”
Smartphone demand remains weak
The smartphone segment is likely to remain a weak spot in the near-term, with higher memory prices and rising average selling prices weighing on demand. Domestic smartphone volumes are estimated to have declined 11% YoY in Q1FY27.
Dixon Technologies’ total smartphone volumes, including exports, fell 22% YoY to 7.5 million units. Its smartphone EBITDA declined 6%, while the margin contracted 80 basis points to 2.6%.
Nuvama attributed the pressure to the absence of PLI benefits, higher component and memory costs and adverse operating leverage. The brokerage expects smartphone margins to recover only from FY28 as component manufacturing and backward integration initiatives scale up.
Dixon has maintained its FY27 mobile volume guidance of 32-33 million units and expects mobile volumes to grow 20-25% sequentially in Q2FY27.
Core EMS business continues to grow
The core EMS segment performed better than smartphones In Q1FY27. Companies outside the mobile and RAC segments reported 68% YoY revenue growth. Nuvama also expects better utilisation and profitability for RAC EMS players as channel inventories have normalised from the excess levels seen last year.
EMS: Working capital remains stretched
Supply-chain disruptions is another key challenge for the EMS sector in the coming quarters. It has increased working capital requirements as companies build strategic inventory buffers to manage longer lead times.
Nuvama said the ongoing West Asia crisis has increased lead times and disrupted the movement of components and equipment, prompting companies to build strategic inventory buffers and resulting in higher working capital requirements. The disruption has also affected the timing of Kaynes Technologies’ OSAT and PCB ramp-up, which has been pushed to Q3FY27 from the earlier Q2FY27 timeline.
EMS sector outlook: Growth remains strong, but margins are key
Despite the near-term margin concerns, EMS companies broadly maintained their FY27 revenue growth guidance. Dixon retained its mobile volume guidance of 32-33 million units, while Syrma maintained its 30-35% revenue growth guidance and 10.5-11% EBITDA margin target.
Keynes continued to target revenue growth at twice the industry rate. Amber retained its 13-15% Consumer Durables growth guidance and 40% Electronics growth target.
Nuvama also expects the EMS sector to retain its strong demand outlook but believes investors will need to watch the balance between revenue growth and margin recovery.
The brokerage remains selectively positive on the sector, with Amber Enterprises, PG Electroplast and Syrma SGS as its preferred names.
So, the key factors to watch in the coming quarters will be cost pass-through, margin recovery, working capital, smartphone demand, RAC utilisation and execution of new manufacturing capacities.
Disclaimer: This article contains general sector-level market analysis, brokerage guidance, and corporate earnings commentary. The views, brokerage commentary, and financial targets mentioned do not constitute a direct recommendation to buy, sell, or hold any security. Readers should consult a SEBI-registered financial advisor before making any investment decisions.
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