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Economic Times
2 days ago
- Business
- Economic Times
EMS has huge growth prospects for next five years; 5 direct & ancillary plays to bet on: Narendra Solanki
Narendra Solanki, Head Fundamental Research-Investment Services, Anand Rathi Shares, says India's Electronic Manufacturing Services (EMS) sector is poised for substantial growth. Consumption of electronic goods is expected to triple by FY28. EMS share will also increase significantly. Government support is boosting chip manufacturing and ODM. Supply chain shifts from China are underway. New manufacturing plants are being established, focusing initially on high-volume, low-margin products but gradually shifting to high volume, low margin businesses. Further, Solanki says among EMS companies, likes three direct plays like Kaynes, Dixon Technologies and CG Power. In terms of ancillary plays, also likes PG Electroplast and Epack Durable. The India EMS sector some projections say that for the next five years or till FY28, the CAGR growth stands at close to 34%. What as per you will drive this hyper growth phase for this industry and how do you see the growth panning out in the years ahead? Narendra Solanki: Definitely, there is a huge growth prospect for EMS companies in India. If you see the existing numbers, we have currently almost 10 trillion consumption of electronic goods in India which is expected to grow to 30 trillion, of which EMS right now has around 3.5 trillion share, which is also expected to rise to 9 trillion by FY28. So, the CAGR is approximately 30% plus. So, definitely, as an industry we see huge growth prospects for the next five years. Import is expected to decline and export expected to surge. With the support of the government, a lot of companies have also set up different facilities, like chip manufacturing facilities or facilities. Even the ODM, design development and manufacturing, is also picking up pace. There has been a lot of growth available for most of the companies in different areas – be it product design development, outsourcing, manufacturing, contract manufacturing, as well as after sales service space is also opening up with a lot of these companies making inroads into different aspects of this sector. The sector is in a high growth phase and we would expect it to have high growth for the next five to seven years. The other thing I also wanted to figure out was the China factor because that is not helping growth. How are Indian firms emerging as credible alternatives as of date? Narendra Solanki: As far as supply chain shifts related to China are happening, it would be a slow process, but definitely things have started moving. There are already six manufacturing plants coming out including one from Tata Electronics, one from CG Power facility and one from Kaynes. Four of these plants are coming up in Gujarat. So, a lot of these facilities have started to come up. Initially, we expected things would start from high volume and low margin chips and then gradually we would pick up into low volume and high margin chips, which would be less than 30 nm chips. So, right now, we are trying to build capacities ranging from 28 nm to 45-50 nm kind of chips and gradually, we will improve over the next few years. So, definitely within the next five to seven years, we would see a significantly greater shift from China happening, but initially, we would start off with high volume, low margin products and gradually start shifting. We would see shifts happening for high margin and lower volume products as well. Kaynes keeps on diluting. The Dixon promoter has just about sold out. Why are some of these growing EMS companies hitting the market either with a stake sale or a QIP or a fundraise? Narendra Solanki: As a technology, all these businesses are very capital intensive and initially you need to have very high capital cost to set up these facilities. For a chip manufacturing facility, you have to have efficiency of more than 90% and even in some cases you have to have efficiency of 95% to 98% in order to just breakeven. So, if you need that kind of a high capital intensity and that kind of efficiency, it becomes very difficult to find the capital and hence initially, they have to raise a huge amount and then invest into acquiring technologies and building partnerships in order to secure long-term customers and to achieve the returns. Which is your favourite in terms of pecking order? Is it Kaynes? Is it Dixon? Is it Amber? Which is your preferred bet? Narendra Solanki: It depends on the kind of exposure. We like Kaynes right now. We like Dixon Technologies as well and CG Power. These three are the direct plays which we like and in terms of ancillary plays, we also like PG Electroplast and Epack Durable. Some would argue that while EMS is growing, where are the margins? Margins are 2%, 3% on a net level. That means it is one of those businesses, where the top line is great, but on the bottom line, either there is a huge currency risk, or a huge client risk. If margins are 2-3%, that is not a great business to be in. Narendra Solanki: That is what I have said. Initially when we have to start, it has to be high volume, low margin products and gradually when we build up our technologies and ramp up our scale and efficiency, then gradually we would see that all these high volume, low margin business would start converting into a low volume and high margin businesses and gradually will pick up from there. So, this is the transition we have to make and it would take around two to three years and when that transition happens, we would see margins improving significantly for these companies. I believe you retain a buy call on Dixon Technologies, with a target price of over Rs 18,000. But some of the reports recently suggest that one of their biggest clients – Motorola – is now diversifying in terms of their suppliers. Firstly, it was only Dixon Tech, but some of the other companies are now getting into the foray and will be supplying to Motorola as well. What is your take on this particular news flow? Will it change anything for Dixon Technologies? Narendra Solanki: Not immediately because they have other strategies as well. They have partnerships into camara modules, lithium-ion batteries as well, which is coming up. A lot of different business would come up for Dixon and we do not see any immediate threat in the near term from this. What is the right PE multiples to look at these businesses? 50, 60 are the PE multiples in the sector now. I can say that the growth is great, but the stock prices are priced to perfection? Narendra Solanki: In the case of Dixon, we model in around 45% CAGR for the next two years and if you factor that in, the valuations with such high growth would adjust significantly and the PE would also come lower. So, right now, it could be around 54-52 PE for FY27 and with such high growth, I think it is still at a decent stage and gradually the margins will also improve going ahead as within two to three years, we will transition from low margin to high margin business.
Time of India
2 days ago
- Business
- Time of India
CG Power shares in focus as company plans to raise Rs 3,000 crore via QIP
CG Power and Industrial Solutions shares will be in focus on Tuesday after the company announced plans to raise around Rs 3,000 crore through a Qualified Institutional Placement (QIP), CNBC-TV18 reported on June 30. The QIP is expected to be priced at approximately Rs 660 per share, nearly 3.25% below Monday's closing price, according to sources. DAM Capital Advisors , IIFL Capital, and HSBC Securities are managing the issue. The fundraising move comes shortly after CG Power secured a Rs 641 crore order from Power Grid Corporation of India Ltd (PGCIL) for the supply and servicing of a 765kV Transformer Package (7TR-12 Bulk). This marks the largest single order in the company's history. The order is expected to be fulfilled over 18 to 36 months, the company said in a stock exchange filing. CG Power, a part of the Murugappa Group, reported consolidated revenues of Rs 9,909 crore in FY25 and continues to expand across industrial systems, power solutions, and consumer appliances. While details on the equity dilution or prospective institutional buyers are not yet disclosed, the QIP is expected to support the company's long-term growth and expansion plans. Also Read: Top 10 Nifty500 stocks with dividend yields higher than industry average CG Power Share Price Target According to Trendlyne, the average target price for CG Power stands at Rs 720, implying a potential upside of about 6% from current levels. Of the 12 analysts tracking the stock, the consensus rating is 'Buy'. From a technical standpoint, the Relative Strength Index (RSI) is at 51.9, indicating neutral momentum. The MACD is at 4.0—above its center line but below the signal line. Also Read: Street Favourite! 10 Nifty micro-cap stocks analysts expect to rally up to 60% ( Disclaimer : Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times)
Economic Times
2 days ago
- Business
- Economic Times
CG Power shares in focus as company plans to raise Rs 3,000 crore via QIP
CG Power and Industrial Solutions shares will be in focus on Tuesday after the company announced plans to raise around Rs 3,000 crore through a Qualified Institutional Placement (QIP), CNBC-TV18 reported on June 30. The QIP is expected to be priced at approximately Rs 660 per share, nearly 3.25% below Monday's closing price, according to sources. ADVERTISEMENT DAM Capital Advisors, IIFL Capital, and HSBC Securities are managing the issue. The fundraising move comes shortly after CG Power secured a Rs 641 crore order from Power Grid Corporation of India Ltd (PGCIL) for the supply and servicing of a 765kV Transformer Package (7TR-12 Bulk). This marks the largest single order in the company's history. The order is expected to be fulfilled over 18 to 36 months, the company said in a stock exchange filing. CG Power, a part of the Murugappa Group, reported consolidated revenues of Rs 9,909 crore in FY25 and continues to expand across industrial systems, power solutions, and consumer details on the equity dilution or prospective institutional buyers are not yet disclosed, the QIP is expected to support the company's long-term growth and expansion plans. Also Read: Top 10 Nifty500 stocks with dividend yields higher than industry average ADVERTISEMENT According to Trendlyne, the average target price for CG Power stands at Rs 720, implying a potential upside of about 6% from current levels. Of the 12 analysts tracking the stock, the consensus rating is 'Buy'.From a technical standpoint, the Relative Strength Index (RSI) is at 51.9, indicating neutral momentum. The MACD is at 4.0—above its center line but below the signal line. ADVERTISEMENT Also Read: Street Favourite! 10 Nifty micro-cap stocks analysts expect to rally up to 60% (Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times) (You can now subscribe to our ETMarkets WhatsApp channel)
Time of India
10-06-2025
- Automotive
- Time of India
Chip company Renesas says Wolfspeed situation won't hit India OSAT
Reports of a likely bankruptcy filing by the US-based silicon carbide (SiC) wafer maker have been sending shockwaves through the global semiconductor industry with experts suggesting that it could impact Murugappa group-owned CG Power's upcoming outsourced semiconductor assembly and test facility (OSAT) in Sanand. Tired of too many ads? Remove Ads Tired of too many ads? Remove Ads Japanese chipmaker Renesas has said that the situation involving Wolfspeed will have "no impact" on its OSAT project in of a likely bankruptcy filing by the US-based silicon carbide (SiC) wafer maker have been sending shockwaves through the global semiconductor industry with experts suggesting that it could impact Murugappa group-owned CG Power 's upcoming outsourced semiconductor assembly and test facility (OSAT) in Sanand."We would like to clarify that the situation involving Wolfspeed will have no impact on the OSAT project, including its production, operations, or the relationship between Renesas and CG Power," a Renesas spokesperson said in a statement to in a recent filing with the US Securities and Exchange Commission (SEC), said 'substantial doubt exists' about its ability to continue as a going Renesas Electronics, CG Power's partner for the project, has a long-term $2-billion SiC wafer supply agreement with Wolfspeed, which is now reportedly on the brink of default. Since Renesas has already made advance payments under the contract, experts had told ET that it risks a financial setback besides supply disruptions. They said CG Power's OSAT facility, which was betting on demand from Renesas, may face headwinds as a Renesas in its statement said that while it does not comment on the financial situation of Wolfspeed, it said it will not hamper its ability to continue supporting the JV project. Additionally, it said that it does not plan to produce SiC devices under the OSAT joint venture in India."India remains a key focus market for us, and Renesas is committed to supporting the 'Make in India' initiative and continuing our full support of the OSAT joint venture," the spokesperson said. "Therefore, we do not anticipate any global supply chain disruptions arising from our relationship with Wolfspeed."CG Power holds a majority 92.3% stake in the joint venture OSAT, with Renesas holding 6.8%.In an interview with ET in May, Renesas global CEO Hidetoshi Shibata said he expects the Sanand facility to roll out its first chip from a pilot production line by Rs 7,600-crore plant is slated to start mass production in 2027, he said, adding that Renesas is also in talks with other potential Indian partners to expand its presence in the country at various levels.
Time of India
06-06-2025
- Automotive
- Time of India
CG Power's chip plans rocked by turmoil at wafer company Wolfspeed
Reports of a likely bankruptcy filing by US-based silicon carbide (SiC) wafer maker Wolfspeed are sending shockwaves through the global semiconductor industry and could impact Murugappa group-owned CG Power's upcoming outsourced semiconductor assembly and test facility (OSAT) in Sanand, experts told ET. Japan's Renesas Electronics, CG Power's partner for the project, has a long-term $2-billion SiC wafer supply agreement with Wolfspeed, which is now reportedly on the brink of default. Since Renesas has already made advance payments under the contract, it risks a financial setback besides supply disruptions. CG Power's OSAT facility, which was betting on demand from Renesas, may face headwinds as a result, experts explained. "Wolfspeed's impending bankruptcy will cause supply disruptions globally including Japan, China and even India," said Danish Faruqui, CEO of US-based semiconductor investment advisory Fab Economics. "If Wolfspeed undergoes bankruptcy proceedings, Renesas will face significant accounting losses to recognise impairment losses because it will likely struggle to recover the advance payment of $2 billion." This, he added, may hamper Renesas' ability to continue supporting global JVs with the vision of expanding production capabilities. Wolfspeed, in a recent SEC filing, said "substantial doubt exists" about its ability to continue as a going concern. Within three days of that, Renesas reportedly decided to halt in-house production of SiC power chips , Faruqui noted. "There is a high possibility of a bankruptcy filing which shall not only be a setback to Renesas but also for its downstream partners like CG Power's OSAT," he said. Queries sent to CG Power and Renesas remained unanswered as of press time Thursday. Devroop Dhar, cofounder and board member at Primus Partners, agreed that the development could impact the CG Power venture at least in the short term. "A lot will depend on the kind of financial hit that Renesas takes and how much time they take to rebound," he said. "If Renesas is going to be down for a long time, then CG Power's plant would really have to be completely reassessed because both from a technology and demand perspective, they are dependent on Renesas as the STMicroelectronics is only an OSAT partner. They are not going to bring any design, capability or demand." CG Power holds a majority 92.3% stake in the joint venture OSAT, with Renesas holding 6.8%.
