Hello friends, welcome again to our Paisa Smart channel and today we are going to discuss another very interesting sector and then we will declare the king of that sector, so today's sector is Electronic Manufacturing Services, EMS, this is a new age sector. And recently some companies got listed in the last two-three years and they have done exceptionally well on the stock market and many investors have done very well. Returns have been received in these EMS stocks, so this sector is a sunrise sector and we will discuss this sector in this particular video and in it we have selected six companies and we will discuss a little about all the six companies and discuss their financials. And in the end , we will also discuss the risk factor of the sector, so please watch this video till the end, this is EMS i.e. Electronic Manufacturing Services, would you know that which Accordingly, technology is advancing and the use of electronics and software is increasing in all the products, that is, the simplest product will be taken like a fan or an air cooler or an air conditioner, even there the manufacturers want to incorporate. Electronics and
electrical products or some software due to which these devices or appliances become smarter and provide better service to the user . Accordingly, advancement is happening across the board whether it is vehicles two wheelers four wheelers defense equipment medical equipment mobile phones etc. gradually in every electronic product the advancement in technology is leading to more and more complexity in manufacturing and which big companies are the original equipment manufacturers who make the actual appliances or devices Their core competency is to design the product and to market the product in a highly comparative situation that is why they try to outsource the manufacturing to specialized electronic manufacturing companies so that their focus remains on design and on selling and manufacturing. That is being outsourced, so this outsourcing of manufacturing is a new trend. This trend has picked up only in the last 1015 years and do you know why this trend has picked up because it is India which is the world's not India, sorry, the world's largest device company is Apple Watch, iPad or iPhone. Will design the product they will market it
they will provide all the services around it but the manufacturing takes place in China and in Taiwan and on them There is no need to focus on manufacturing, once you have given the design, once you have shared the entire technology with them, then they are all the problem, manufacturing is not their problem and they can focus on service and marketing, so this is what Now it is being copyWB Portfolio is a basket that is hosted on small case a please study this product it is very interesting product you can easily use it By subscribing to the product, you will be able to invest in the shares of the company. You can click on this link and our discount code for the new year is HAPPEN25, so take advantage of this discount code as soon as possible and subscribe to this product. Deepan Mehta is joining. As Now Director Equity Deepan Mehta We Have Deepan Mehta Welcome Na Deepan Mehta Deepan Mehta Meeta Deepan Mehta With Market Big Voice Deepan Mehta Deepan Mehta of Equity So today's candidates for the sector are Raja R Dixon Technology, after that comes Cannes Technology, the third company is Simia, SGS, the fourth company is DC Ek Systems, the fifth company is Allen Technologies and the sixth company is CIA. DLM which was a split form CIA software, so these were our six companies and all these companies, they are all I know about their operations.
Gradually growing very fast because they are getting huge orders for electronic manufacturing services. Another special thing is that there is another special trend which is very important for EMS companies and that is the PLI scheme of the government i.e. Production Link Incentive Scheme because Modi Is this a policy of the government or is it their thought process that earlier too many electronic imports were coming into India and to reduce the imports? Of Electronics they have tried to implement this PLI scheme from where if you manufacture these electronic products in India for Indian market and for exports, if you make this investment then definitely the government will provide you with certain incentives and this The incentives are very good and the actual payouts are also in some cases due to which this entire sector, the EMS sector, has received a huge encouragement from the government and a whole new industry i.e. is being set up in India, you will be surprised. That in today's date, earlier India was a large
importer of mobile phones but as of now India is one of the largest exporter also of mobile phones. It comes and any of the popular brands which are available globally. So this was our broad discussion on EMS. Now let us move on to individual companies but I would like to tell you viewers that these businesses are a bit complicated and very technical, so we also It is a bit difficult to understand and explain to you but we can only say that these companies are very specialized producers and once they get the contract for manufacturing a For manufacturing a particular device and a particular sub- assembly or even electronic component, the contracts that are in place are very long term and because of that, there is a higher degree of client loyalty and to some extent, there is also earning visibility. Because of this, the market is paying a very high price to earnings multiple because if there is visibility and growth in the business and then on the The management of the whole company and the entrepreneur budding, the price earning multiple of the company is stars to shoot and you will see in this presentation that the minimum P multiple of the EMS company is around 70 times and the maximum goes almost to 200 times because of this. When We Come to an Investment Thesis in the End I'll Reserve for That But All These Stocks Are Quite Expensive but it does not mean that if you have these stocks in your portfolio then you have to sell them on the whole they are expensive and they will remain expensive because it is high growth and has visibility.
Before discussing our first company, let me again I request you to please subscribe our channel because according to us, 60% of the people who watch our videos are not subscribed to our channel. Channels So Please Subscribe You Will Get Alerts When Ever We Are Putting Up New Videos And As Per Your Subscription Our Subscriber Numbers Will Increase We Will Be Encouraged To Bring More And More Interesting Videos And More And More Interesting Sector Discussion On This Channel Please Support us in reaching our target of 1 lakh subscribers by the end of this financial year. Subscribe to our channel and not just watching our videos Our first company is Dixon Technologies and this company has set the stock market on fire. It has been one of the best performing stocks in 2024 and it has been a multi bagger stock. And many investors have got very good returns from this company because it is the only company where you can benefit from increased manufacturing of mobile phones. In India, yes, there is no other listed company which is doing complete assembly of mobile phones for domestic market and for exports and because of their technology, because of their systems and execution, many of them are getting new contracts for mobile phones. For LED TVs, for laptops and whatever electronic products,
this company is trying to expand in all electronic products so that it can grow over the next In four five years and three ends, it is estimated that this company can grow at 40% for the next year. Major beneficiary of India's PLI scheme is Dixon Technology because they are taking full advantage of manufacturing in India for Their clients in India and for the global markets are bigger than the clients of all F500 companies. Manufacturers I would like to be a large designer of all the mobile phone companies and all the television companies as well so this was Dixon Technologies its operating profit margin is very low but due to all this their volume and sales are increasing I think the prospect is very good this Due to this the company is trading at a very very high P multiple. Let's see what are the financials of Dixon. So the current price which is around 1683. Mind you which is down about 12 per cent
from high, the market capitalization of this company is Rs 11130 crore and the price earning multiple of this stock is 180 times but if you see, its sales are quarterly sales, quarterly profit is that is. Growing up more than 100% i.e. its quarterly sales in September quarter grew by 133%. And the net profits grew by 119 per l So in the past I think if you see, the revenue of the company in the last three years has grown at significantly higher 100% type of growth rates and in the last one year this stock has returned almost At 167 and so the return on equity of the company is quite strong, quite healthy at 24.7 and the special thing is that in the last quarter Around 82% of the revenue came from mobile and electronic manufacturing services and this is mobile manufacturing services that is growing even faster than some of the traditional products like lighting from where they started their business, this was Dixon Technologies and this is most of India. Is the largest EMS company and like I said very dynamic management and gradually their product lines are Expanding Rapidly by Taking on New and New Contracts of Manufacturing Our second company is Case Technology and this is also a new listing which is exceptionally well so the special thing about Case Technology is its strength is that apart from manufacturing it is also able to Design the product for the OEA and this design capability is their edge in the market but unlike Dixon Joe Keynes The product which is basically sub assemblies and they are like PCB which goes in to the final appliance or the final device i.e. that is the one which is manufacturing that is not complete to the end product but more for the intermediate product which is then assembled . goes into the final product but still due to their technology, in terms of design and in terms of efficient manufacturing, they have become capable.
To get more and more orders and hence I think its growth rate should also be very good because like I said today's big companies which are manufacturing devices for the industrial purpose and for the consumer, their focus is On design and on marketing and they want to outsource the manufacturing and to an extensive company like Kens Technology can even provide design services something special Kens If we look at it, then like I said that it is one of the India's largest EMS companies and its 31% revenue comes in the auto industry because many vehicles require a lot of electronics in the vehicles for infotainment so that is their specialty there. Industrial Products is Contributing at about 44% and then Medical Rail Wage Consumers are contributing smaller to the Companies Revenue Let's look at the finances of this company, at current price of Rs 6700, its market cap valuation is around Rs 43000 crores and the price toning multiple of the company is 231 times. Yes, its P multiple is 231, that is, you can think. This stock is quite expensive and the company has given fantastic returns. This company has given a return of 168% in the last one year
because Like I said, this is a high growth sector, so this company's quarterly sales have grown by 48.5% but profits have grown by 146% for the September quarter, so the special thing about EMS companies is that their profit growth is so high, almost 100% 50. Their profit growth is coming up to 100% in 70 days, that is why the Street is prepared to pay a higher. PA Multiple to Cannes Technology Company's Return on Equity and Return on Capital Employed is a little low at 11.2 but
as the capacity ligation increases as the revenues increase I think the return ratio should also gradually go up. So this was our second company Cannes Technology India Limited. Our third company is Simia SGS and this is also a new listing and its business model is very close to Kenas Technology which was our second company they are also focusing on provide design services they have very large and very efficient PCB manufacturing printed circuit board manufacturing capacity and this company which is also focus on provide design services and many more and to It also manufactures end assembly and end products for original equipment manufacturers. Let's see the revenue breakup of this company. Industry wise , this company is from Automobiles at 37, from Consumers at 6, from Health Care Industrial product at about 29 and IT and Railways is at about 5 1/2. The company has 12 manufacturing plants all over India. And gradually their expansion plan is also quite attractive. Let's see about this company. What are the financials?
Seram SGS is a mid cap company at current market price of Rs 595. The capital raising is around Rs 10560 crore and like I said, all the EMS companies have a very high P multiple, Simia P also has a P multiple of 99.6 times, the company's sales growth was quite tepid for the last quarter, which was about 17 per cent. And quarterly growth of net profit was just 24 per cent for September quarter due to which we have seen a slight correction in Serum SGS is well Company's Return on Equity Return on Capital Employed is also very low I would say at 99.8 4 and 6.81 but
as their operations scale up I think this is the return ratio that will also definitely improve and many more Analysts estimate that this September quarter might have been a bit slow down for the company but as per the order book position of the company And due to the new clients they have added on board, the company's profitability and growth should increase very well in the next three to five years. Our third company was Simia SGS. Our fourth company was DCA Systems. And this is a very interesting company because their
products and assemblies are largely going into defense equipment and you know the security of the nation and defense. These are priority for every country and the way the spending on defense is increasing, I think the prospects of this company will be good because wherever defense expenditure is happening, most of the expenditure is going into electronics and software and this company is a IT manufacturer. Respect it assembles and provide sub assemblies for many interesting products like raiders optics obsc control and many more security The manufacturing capabilities of this company in the products are all assemblies, they are going into these particular products and this company is one of the largest offset partner for Israeli defense company, so what is this offset, when Israeli company and any other If global defense manufacturer is importing to India then they have some commitment or something which The value is they will also get it manufactured in India with offset partner so DC is one of the biggest offset partner of the Israeli company and because of that good relationship there is a continuous flow of orders from these Israeli companies and from others. Global companies as well so I think earnings visibility is good, they've got good network of clients as well and because their Which is a product that is very sophisticated and goes in to security and defense products I think it is got a very good comparably compared to big cup of tea to manufacture assemblies and sub assemblies which goes in to defense products so let's see DC What are the financials of Ek So the company is a midcap company and its price as on date is around 375 and at this level its market capitalization is around 4100 4100 crores. The PM is a tipple of the company that is 76 6 times which is also very much on the high side especially if you consider the numbers that came in the September quarter. He was very disappointing. Quarterly sales went down by 36.7 and net profits went down by
74. The reason for this was this. The reason was that whatever sales they had, whatever new contracts they had, got postponed to the next quarter, the next year, because of this, they gave a certain degree of slow down in their revenue and profitability, and this is always the case in any B-to-B business. If you have a big customer for some region and the other one is postponing the supplies and taking on a new supplier, then your revenue of There may be a negative impact on profits and this was what happened in the DCA system for the September quarter but the track record of the company has been very good and in the last few years they have been able to grow consistently at 25 30 and even higher. Our fourth company is DCA Systems. Our fifth company is C NDLM and its business model is also very similar to other electronic manufacturing services companies. Their
focus is on manufacturing of PCD and assembly and sub assembly of several electronic components. This company is part of the CN Group and CN Group is one of India's large software services company and they have association with many Arrowsmith companies. There is a good tie up due to which Aerosmith gets a client, then they engage in what is called client mining i.e.
start making a few products. Then they start bidding for higher and higher share of the manufacturing outsourcing services of the customer due to which growth in the last People have been exceptionally good. Let's see what are the financials of the company and what are the other qualitative factors. So like I said PCB manufacturing is a very high portion of the companies revenue. Apart from this the company
also does cable harnesses and many sub assemblies. Also manufactures for aerospace industry which contributes to 24 per cent of the revenue defense sector. Contributes 59 and then the rest of the verticals which are medical industrial and rail contribute the balance portion of the revenue of the company which is PCB which contributes 70 in the revenue of the companies at the current price of 630. The market capilaisation of the company is approx. 5000 crores and its P multiple is also quite expensive at 74.2 times the company's September quarter If you see, the sales
were good at 33.4% but there was a lot of negative pressure on the operating profit margin due to which the net profits grew by only 6.14% of the company. Lately there has been a lot of correction in the stop price which is currently trading at 28% since it is all The return ratio of Time High Company is steady at 14.1 and 11.1, nothing
exceptionally good in my opinion as the volume There will be scale up, this ratio will also start to improve, so this was our fifth company, Sealed DL, our sixth company is N Technologies and it is also a very good company and like Dixon, I think it is compared to some of the others. In EMS companies the proportion of assembly to final product is very high almost 54 per cent of the revenue comes from the final product which it is Given to the EV companies and to some of the other electronic companies globally, about 50% of the revenue comes from exports and 50% of the revenue comes from India, so its special thing is that not only does it do the assembly work, an intermediate assembly which can final assemble. Products say box build that also the companies engage in doing a complete assembly and complete Manufacturing of the product so this was our Allen Technologies let's see some special things about it and the financial also we will discuss so like I said 54 is coming from Finnish products 28 but again printed circuit boards yes this printed circuit board cable this is the Standard Product for all EMS Companies Their journey starts from Manufacturing Printed Circuit Boards and then they keep on doing More and more value added products, 28% of the revenue comes from printed circuit butts and then the balance comes from cables, magnetics, design etc. If you look at the revenue contribution, then the clean energy products are contributing 17% of the revenue. Mobility i.e. EVs,
electric vehicles etc. Industrial Products 35 on Automobiles Contributing 27 And then the rest , if we look at the financials of this 10 10 E From Communication and Medical Products company, at the current price of 931, the market cap of the company is around 6000 crores and the stock P is atonicity, yes its P multiple is very high but its The reason is that the company's results are very good. This company reported growth in revenue for September quarter at 36 and at 140. Growth in Net Profits So where the growth is high you will always see that in the market is paying a much higher P multiple for true high growth companies the return ratio of the company is very low not worth seeing about 4 to 5 but about that but this is As a standard, their return ratio is low among all EMS companies because the plant machinery is quite capital intensive. remains intensive but scope to expand, scope to increase capital capacity expansion is phenom, due to this I think the return ratio of this industry should also improve in the next few years. The operating profit of the company is about 7.53 and from the high it is trading at a 13.4 Lower, this was our sixth company L'
On Technology. Let's talk about this industry before announcing the Radha of the sector. If we discuss the risk factors, it is not that it is a high growth industry, there is 100% growth in profits but there are no risk factors. One of the biggest risk factors for investors is that they are trading at a very high P multiple and Those companies which are traded at such high P multiple 70 80 100 200 times, if the results are not good then immediately a sharp Correction can come, so you should keep in mind that when you are buying an IP company, you have to expect that the earnings will be better than what the firm is expecting and it can grow at 50 70 100% only then. If this is multiple, it can be sustainable, then this is High P multiple is a risk factor. The second risk factor is that they are
typically B2B businesses, that is, their customers are large industrial companies, large consumer companies, large electronic companies and their strategy there in terms of outsourcing. If some changes come, then there may be some negative impact on these companies directly, that is, because the client concentration is very high for this. If companies and one or two clients stop supplies, then there can be a negative impact on automatic revenue and profits. Government
policies can also have an impact on this industry, which I said is PLI i.e. Production Link Incentive Scheme. That remains a big component in terms of profitability for this company and if there are some changes in the government scheme. Then definitely this company can have a negative impact on the profile of the company, on the profitability of this company, on the profitability of this industry. Let us now announce the king of the sector. So it is not a big surprise that the king of the sector is Dixon Technologies because which Accordingly, this company has scaled up its operations thereby manufacturing total value added products with large amount of backward diversification and thereby manufacturing many multi products. Specially end products this company manufactures
because of this I think this is the king of the sector but it is trading at very expensive m expensive P multiple so I would like to tell you that only at correction should you look at considering Dixon but this which High P multiple is that which is constant across the sector. If you are invested in this sector then do not sell the stock because It is high P because it is also growing very well. In the end I would like to say that these six companies which we have discussed are not recommended stock ideas for you. I am trying to give you some more information on a sector. Which is quite complicated, it has such products and such systems, there is something special about it and it is very difficult to explain but we definitely tell the investor that We can definitely tell that this is a sunrise industry and gradually these companies will grow into manufacturing giants as I would say as they get more and more customers and they start to assemble and manufacture more and more products with in the electronic space. Hope you liked our video and we look forward to any of your feedback and suggestions on this sector and any of The Other Videos That
2025-01-14 05:27