India's electronics manufacturing is at an 'inflection point', poised to almost quadruple between FY24-30 to $450 billion, compounding at around 25 percent CAGR, Nomura has said.
In a note dated September 11, Nomura listed out multiple catalysts driving this growth:
- Higher sourcing by global players like Apple/Samsung (~20-30% of requirement)
- Global IT hardware players (Lenovo, HP, Dell, others sourcing ~20% of global requirement)
- Rising electronics usage and a localization push in automobiles
- Usage in railways, telecom and defence, and stronger scale-up in the component ecosystem (display, PCB, semiconductors).
The note by Nomura said exports are likely to scale up faster at a ~35% CAGR, reaching $210 billion by FY30F, while domestic consumption should grow at a 15% CAGR.
Centre's push for domestic manufacturing of electronics - led by Production Linked Incentive (PLI) schemes worth $20 billion - remains the key enabler to achieve this growth. More than half of this capital allocation has been made to manufacture semiconductors and electronic components.
Nomura also initiated coverage on Dixon Technologies and Kaynes with Buy calls, and target price of Rs 15,567 and Rs 5,969 respectively.
Also read: Kaynes Tech rallies 13% on Nomura's Buy call and PM Modi's upbeat EMS growth target
The Nomura report highlights that conditions in India are similar to those that helped tech manufacturing flourish in US, Japan, China and Taiwan.
"There is strong government support for localization and exports through attractive schemes like PLI and import restrictions. There have been concerns that these incentives are too large and whether investments will continue after they taper off. In our view, this is the right approach by the Indian government, and all successful countries have given strong government support to the tech industry for many years in their early stages. Many governments continue to support their countries even now," Nomura analysts said.
The note added, "This in developing the critical mass necessary to create a self-sustaining industry, in our view."
Government's push also boosts industry's confidence to commit large resources for the longer haul, the note added, pointing out that India has the advantage of cost competitive labour (20-50% cheaper than Vietnam and Thailand).
"Increasing scale has supported commitment to invest on a larger scale for deeper backward integration in more advanced technology," said Nomura.
The initial advantage for domestic manufacturers will accrue from technological tie-ups, said Nomura, adding that India’s neutral stance on the US-China tech rivalry makes it an attractive partner for both Western and Asian partners.
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