The next leg of growth in the electronic manufacturing industry is expected to be driven by component manufacturing as companies ramp up component manufacturing on the back of PLI schemes and have increased their focus on backward integration, analysts at BNP Paribas said in a report.
“While the pace of imports of finished goods (particularly mobiles, TVs, and ACs) has slowed in recent years, the dependence of the electronics industry on imports continues, especially for components. But we expect the growth of the electronics manufacturing sector to continue across the full supply chain, supported by multiple factors, including the development of domestic semiconductor capabilities and initiatives to increase the domestic sourcing of necessary components,” BNP Paribas said in a report seen by Moneycontrol.
Over the past decade, electronic components manufacturing in India grew at 13% CAGR, trailing the overall electronic manufacturing industry growth of 19% CAGR.
The Indian electronics manufacturing industry witnessed a massive four-fold increase from $25 billion in FY13 to $100 billion in FY23, driven by the aim to reduce dependence on imports of finished goods. This translated to 19% CAGR over the past decade, equivalent to 78% of the Indian electronics market.
The government of India (GOI) has also set an ambitious target for the industry, reaching $300 billion by FY26.
India currently accounts for only 3-4% of global electronics manufacturing, despite having a large domestic market. However, favourable government policies and a shift in global sentiments towards India, an alternative to China, will help increase this share further.
India’s electronic manufacturing services (EMS) industry’s total addressable market (TAM) is expected to grow at 27% CAGR over FY23-27 to reach $100 billion in total revenue. The rise of domestic EMS players and push on component manufacturing in the country
According to a report by BNP Paribas, the domestic EMS industry’s size is expected to more than double to $55 billion by FY27. “We expect domestic EMS suppliers to capture an increasing share of the total market as they develop their products, capabilities, quality, and relative competitiveness,” the brokerage said in a note seen by Moneycontrol.
Analysts at BNP Paribas said that the revenues captured by domestic suppliers are expected to more than double to $55 billion by FY27 to corner a 5% global EMS share.
“We expect India’s EMS industry to account for a growing proportion of global revenues driven by the continued growth in India’s overall domestic electronic manufacturing capabilities, driven in large part by domestic consumption; the continued moves by global EMS producers to diversify their country exposure, and associated risks, and the relative attractiveness of India vs other potential investment destinations,” the analysts said.
They added the potential increase in outsourcing by OEMs in selective categories such as printed circuit board assembly (PCBA) will also drive growth for the local industry.
Among Indian players, the brokerage said that Dixon Technologies is emerging as a one-stop shop to play the high-growth EMS story on the back of new customer acquisitions and strong import substitution opportunities.
Dixon’s position in the mobile phone segment has been bolstered by large customer wins, higher orders from existing customers, and recent acquisitions and tie-ups. “We forecast Dixon to deliver 45% and 52% revenue and PAT CAGR over FY24-27. We believe that the company’s strong growth potential, on the back of a lean working capital cycle, an average ROE of 21% (over the past 8 years) and a higher fixed asset turnover (7x) will continue to underpin its premium valuation,” BNP Paribas said.
The Indian electronics market, including domestic production and imports of finished goods, is valued at $130 billion as of FY23, out of which domestic consumption is valued at $106 billion.
“Growing at a value CAGR of 15% over FY16-23, it is one of the fastest growing industries in the country. The growth has been driven by faster replacement cycles, rapid digital adoption, and higher demand for technologically advanced products."
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