Archive · 29 Sep 2026
JPMorgan downgrades three EMS stocks despite strong projected earnings growth
JPMorgan reviewed three companies that make electronic products for other businesses.
It downgraded all three because their share prices have risen sharply and may already reflect very high growth expectations.
Avalon is expected to have the fastest earnings growth and the best return on capital.
Syrma is expected to grow its revenue the fastest.
Cyient DLM is expected to grow more slowly and keep more money tied up in working capital.
Working capital is money a company needs for inventory and day-to-day operations.
JPMorgan says investors should consider cash use and capital efficiency, not just earnings growth.
The brokerage believes the market is assuming very strong growth for all three companies over the next decade.
These are JPMorgan’s estimates and ratings, not independent investment advice.
JPMorgan downgraded Syrma SGS Technology, Avalon Technologies and Cyient DLM from Neutral to Underweight.
Avalon has the highest projected FY26-28 EPS CAGR at 47% and the strongest FY28E ROCE at 29%.
Syrma leads projected revenue growth at 37%, while Cyient DLM trails at 27%.
Cyient DLM has the highest estimated FY26 working-capital requirement at 195 days and the lowest FY28E ROCE at 16.3%.
JPMorgan said current valuations imply optimistic long-term revenue growth assumptions for all three companies.
- Who
- JPMorgan and the three EMS companies: Syrma SGS Technology, Avalon Technologies and Cyient DLM.
- What
- JPMorgan downgraded all three stocks from Neutral to Underweight after comparing their growth, valuations, ROCE and working capital.
- When
- The downgrades followed share-price gains over the previous one-and-a-half months; the analysis uses FY26-29 estimates.
- Why
- JPMorgan said premium valuations must reflect not only earnings growth but also ROCE, cash generation and working-capital requirements.
Growth and earnings case
Valuation and capital-efficiency caution
What should determine valuation?
Growth and earnings case
Strong projected revenue and EPS growth may support premium valuations, particularly for Avalon, which has the highest expected EPS CAGR.
Valuation and capital-efficiency caution
JPMorgan says growth alone is insufficient because EMS businesses require substantial capital expenditure and working capital; ROCE and cash generation should also influence multiples.
Company-specific strengths
Growth and earnings case
Syrma leads projected revenue growth, while Avalon combines the strongest projected EPS growth, highest ROCE and strongest margin expansion.
Valuation and capital-efficiency caution
Syrma’s valuation implies a 34% long-term revenue CAGR, Avalon’s implies 37%, and Cyient DLM’s implies 39%—assumptions JPMorgan considers optimistic.
Cyient DLM outlook
Growth and earnings case
Cyient DLM is expected to deliver 39% FY26-28 EPS CAGR and generate estimated FCFF of Rs 257 crore in FY27.
Valuation and capital-efficiency caution
Its projected revenue CAGR is the lowest, its FY28E ROCE is the weakest, and its estimated FY26 working capital is highest at 195 days.
- Ratings
- All three stocks were downgraded from Neutral to Underweight.
- FY26-28 EPS CAGR
- Syrma: 34%; Avalon: 47%; Cyient DLM: 39%.
- FY26-28 revenue CAGR
- Syrma: 37%; Avalon: 32%; Cyient DLM: 27%.
- FY28E ROCE
- Syrma: 21%; Avalon: 29.3%; Cyient DLM: 16.3%.
- FY28E P/E
- Syrma: 56.6x; Avalon: 67.5x; Cyient DLM: 51.6x.
- FY26 estimated NWC
- Syrma: 63 days; Avalon: 120 days; Cyient DLM: 195 days.
- Recent share-price gains
- Syrma rose 21%, Avalon 35% and Cyient DLM 38% over one-and-a-half months.