1 week ago
EMS Revenue Rises 27%, but Margin Pressures Persist
Electronics manufacturers made more money in the first quarter of FY27, but keeping those profits is becoming harder.
The eight largest companies increased their revenue by 27% from the same period a year earlier.
They raised prices because materials such as memory chips and copper-related components became more expensive.
Even after those price increases, profit margins were squeezed because costs rose before companies could fully pass them on.
Smartphone sales were weak, and domestic smartphone volumes fell by about 11%.
Businesses making products other than smartphones and air conditioners grew much faster.
Supply problems also forced companies to keep more parts in stock, tying up more money.
Analysts still expect the sector to grow, but they will watch whether profits recover as costs and supply problems improve.
The top eight EMS companies increased Q1FY27 revenue 27% year over year, while EBITDA rose 29% and PAT grew 25%.
Companies raised mobile and room-air-conditioner prices by 5-15% to offset higher input costs, but margins remained under pressure.
Domestic smartphone volumes fell an estimated 11% year over year, while Dixon’s total smartphone volumes declined 22% to 7.5 million units.
Core EMS businesses outside mobile and RAC reported 68% year-over-year revenue growth, with RAC utilisation expected to improve.
Nuvama expects strong sector demand but says investors should monitor cost pass-through, margins, working capital and new-capacity execution.
- Who
- The top eight electronics manufacturing services companies, including Dixon Technologies, Kaynes Technologies, Syrma SGS and Amber Enterprises, with Nuvama providing the sector analysis.
- What
- EMS companies reported strong Q1FY27 revenue and earnings growth, while higher input costs, weak smartphone demand and supply disruptions pressured margins.
- Where
- The domestic electronics manufacturing and mobile-phone market; specific company operating locations are not stated.
- When
- In Q1FY27, with further effects and price increases expected in the coming quarters.
- Why
- Companies raised prices to offset higher raw-material, wage and currency-related costs, while supply-chain disruptions increased lead times and working-capital needs.
Growth and demand outlook
Margin and execution risks
Revenue growth
Growth and demand outlook
The sector delivered 27% revenue growth in Q1FY27, core EMS businesses grew 68%, and companies broadly retained their FY27 growth guidance.
Margin and execution risks
Revenue growth may not translate into equivalent profit growth because higher raw-material costs, wages and rupee depreciation are still affecting margins.
Smartphone business
Growth and demand outlook
Dixon expects mobile volumes to increase 20-25% sequentially in Q2FY27 and retained its FY27 guidance of 32-33 million units.
Margin and execution risks
Domestic smartphone volumes declined 11% year over year, while higher memory prices and selling prices are expected to weigh on demand.
Sector outlook
Growth and demand outlook
Nuvama expects strong demand, improved RAC utilisation and eventual smartphone-margin recovery as component manufacturing and backward integration scale up.
Margin and execution risks
Margin recovery is uncertain in the near term, and supply disruptions, inventory buffers, working capital and delayed capacity ramp-ups remain risks.
Key facts
- Sector revenue growth
- The top eight EMS companies reported 27% year-over-year revenue growth in Q1FY27.
- EBITDA and PAT growth
- EBITDA increased 29% and profit after tax rose 25% year over year.
- Price increases
- Companies raised prices by 5-15% in mobile and room-air-conditioner segments.
- Domestic smartphone volumes
- Domestic smartphone volumes were estimated to decline 11% year over year in Q1FY27.
- Dixon smartphone volumes
- Dixon Technologies’ total smartphone volumes, including exports, fell 22% year over year to 7.5 million units.
- Core EMS growth
- Companies outside the mobile and RAC segments reported 68% year-over-year revenue growth.
- Kaynes capacity timeline
- Kaynes Technologies’ OSAT and PCB ramp-up was pushed to Q3FY27 from Q2FY27 because of supply-chain disruption.
- Preferred names
- Nuvama identified Amber Enterprises, PG Electroplast and Syrma SGS as its preferred sector names.
Quotes
Nuvama
Brokerage providing sector analysis and earnings commentary
“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.”
financialexpress.com
Sources
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