Shares of electronics manufacturers crash 50%: Good time to buy?
What's the story
Shares of top electronics manufacturing services (EMS) companies in India have witnessed a major correction. The likes of Dixon Technologies, Kaynes Technology, and PG Electroplast have seen their stock prices plummet by as much as 53% from their 52-week highs. This comes after a period of strong growth fueled by government policies and global supply chain shifts.
Market dynamics
Factors contributing to the market correction
The market correction is attributed to a combination of factors, including earnings uncertainty and policy risks. A sharp rise in memory chip (DRAM) prices has hurt smartphone demand and squeezed margins for Dixon Technologies, India's largest Android handset maker. Regulatory overhang on pending government approvals for joint ventures also threatens volumes and profitability from FY27 onward.
Corporate hurdles
Company-specific challenges exacerbate market downturn
Company-specific issues have also contributed to the market downturn. Kaynes has been under scrutiny for disclosure lapses and stretched working capital, with receivables ballooning in recent quarters. PG Electroplast reported a weaker-than-expected summer season. For Dixon, three key risks are potential volume/margin hits from FY27 due to pending joint venture approvals, memory price surge denting smartphone demand, and weak December quarter growth expectations.
Investment outlook
Are these stocks now a good buy?
Despite the sharp correction, the question of whether these stocks are now a good buy is hotly debated. JP Morgan recently called Kaynes "below bear case" and the "cheapest on PEG" in its coverage universe at 0.7x versus peers' average of 1x. Sunny Agrawal from SBI Securities acknowledged short-term headwinds but defended long-term growth potential for these businesses.
Market advice
Caution advised amid high expectations and upcoming earnings
Om Ghawalkar from Share.Market cautioned against rushing in to buy these stocks. He said that while EMS stocks have corrected 35-52% from their peaks, the sector may not be undervalued yet. He also noted that rounded trailing multiples for leading EMS names continue to trade well above broader manufacturing averages, reflecting high expectations of sustained execution and growth.