Is this small cap stock a good bet on the electronics manufacturing services sector?

However, global brokerage Jefferies remains bullish on the EMS sector, particularly companies that produce high-margin components like Syrma SGS Technology. We take a look at this small-cap stock to see its upside potential in the short- and long-term.

The buzz around EMS and Syrma

In November 2024, the Ministry of Electronics & Information Technology (MeitY) proposed a $5 billion (Rs 42,245 crore) incentive to promote the domestic production of electronic components such as printed circuit boards (PCBs). It required the finance ministry’s approval and fund allocation in the Union Budget 2025-26.

While the idea of incentives for electronic components was brewing, Syrma began evaluating opportunities in electronic component manufacturing. The company produces electronic devices such as smart energy meters and 5G subscriber devices like Wi-Fi routers, as well as electronic components such as electromagnetic and electromechanical parts, motherboards, and memory products for various industries. It has the potential to gain significantly from electronic components PLI.

Fig 1: Syrma SGS Technology’s Stock Price Momentum in 2024 and 2025 (year to date)

Source: Trading View

In October 2024, Syrma opened its Pune facility to expand PCB assembly for automotive and industrial sectors. The timing couldn’t have been more perfect — the announcement sent Syrma’s stock soaring 33 per cent between October 25 and 30.

However, a series of events dampened investor sentiment. On January 6, the Finance Ministry approved only Rs 25,000 crore compared to the MeitY’s proposed Rs 42,245 crore electronics component incentive, stating that it wanted the funds to be used completely. In Union Budget 2025, more funds were allocated for electronics manufacturing PLI. However, there was no mention of a separate PLI for electronic components. The lack of clarity pulled down its stock price.

International factors also played a crucial role. The emergence of China’s DeepSeek AI module, trained at a fraction of the hardware cost of ChatGPT created panic around the need for high-computing data centres. Syrma stock took a hit as the company manufactures power supplies and power management units for data centres.

Another round of uncertainty came from US President Donald Trump’s announcement on reciprocal tariffs, which could negatively affect exports to the US. Syrma earns 20 per cent of its revenue from exports to the US and Europe.

Is the current dip an opportunity to buy?

Syrma is a low-volume high-margin manufacturer with its revenue growing faster than the industry average of 35 per cent. The stock fell by 32 per cent year-to-date and is trading at a 53x price-to-earnings ratio (PE), the level last seen in June 2023. Even 53x is a high valuation compared to another low-volume, high-margin EMS player Cyient DLM, which is trading at 50x.

Fig 2: Syrma SGS Technology’s 9 Months FY25 Financial Highlights

Source: Syrma SGS Technology’s Q3FY25 Earnings Presentation

Syrma expects to grow FY25 revenue by 40-45 per cent to Rs 4,500 crore and operating earnings before interest, taxes, depreciation and amortisation (Ebitda) by 44-49 per cent to Rs 320 crore. The Q3 numbers hinted that the company is on track to achieve its FY25 earnings guidance.

On the profitability front, the company aims to sustain its Ebitda margin at 7 per cent in FY25 and beyond. It also aims to improve this margin by increasing the mix of high-margin products.

With an order book of Rs 5,300 crore as of December 2024, the company has enough orders to grow its revenue by strong double digits. It also has additional capacity in place from the Pune plant, which gives it flexibility to grow its annual revenue beyond Rs 6,000-6,500 crore. However, customer acquisition, product design, and other setup will take time before the facility can achieve a decent utilisation rate.

Can Syrma continue to grow without PLI?

According to Niti Aayog’s outline, India aims to scale its electronics production to Rs 42.24 lakh crore by FY30 from Rs 9.71 lakh crore in FY24. Many players are looking to grab a piece of this growth pie.

It would be interesting to see how Syrma, which already has PLI for manufacturing telecom and networking products, white goods, and IT products, performs. Its consumer segment is the major beneficiary of the PLIs and accounts for 40 per cent of its revenue. “Consumer business will continue to be a high-volume consumer business, (it) will continue to be about one-third of my revenue. That’s the desire. And that is also guided by the PLI. See, we have a limit on the PLI. So, there is no point of bumping up the business which is not with PLI,” said Syrma SGS Technology’s Managing Director Jasbir Singh Gujral in the Q3 FY25 earnings call.

The government approves products eligible for PLI and then offers 4-7 per cent incentive on incremental net sales from previous year. Since Syrma uses PLI for high-volume, low-margin products, it only manufactures to the level where PLI benefit reaches its maximum. In FY24, Syrma accrued Rs 12-13 crore in PLI and for FY25 it expects the number to grow to Rs 15-17 crore.

The end of PLI could reduce the motivation to manufacture low-margin products as their margins could fall further. Hence, Syrma is looking to expand in high-margin verticals to keep the production capacity running and generate higher return on capital employed (RoCE).

Is Syrma stock a multi-bagger in the making?

If we compare Syrma’s stock price rally with Dixon Technologies’ growth journey, the question is: Can Syrma SGS be the next multi-bagger?

Fig. 3 Syrma stock price movement

Source: Trading View

Syrma is growing its revenue at 30-40 per cent. Dixon Technologies grew its sales and profit at a 5-year CAGR of 43 per cent and 42 per cent, respectively. Its revenue and profit after tax (PAT) surged 119 per cent and 177 per cent, respectively, in the first nine months of FY25 as the company expanded the mobile and EMS segment’s contribution to 84 per cent from 60 per cent in a year. While Dixon has the benefit of accelerated growth, it is heavily dependent on the mobile PLI scheme for this growth. Moreover, there is concentration risk as the mobile segment now accounts for 84 per cent of its revenue. Any downturn in the mobile space and the end of the mobile PLI scheme in March 2026 raises concern about the sustainability of Dixon’s high growth rate.

On the other hand, Syrma has a well-diversified portfolio across verticals — consumer (40 per cent), auto (21 per cent), industrials (25 per cent), healthcare (7 per cent), and IT and railways (6 per cent), and only the consumer segment is dependent on PLI. While diversification reduces concentration risk, it also limits growth potential.

For Syrma, a multi-bagger moment could come if a dedicated PLI scheme for electronics components becomes a reality.

What brokerages say

PLI or no PLI, the current reality is that Syrma is expanding business with a target to increase its RoCE from 9.5 per cent in Q3FY25 to the industry average of 20 per cent. It plans to do so by expanding manufacturing capacity and increasing the mix of higher-margin products. The stock has the potential to grow moderately depending on how the fundamentals improve.

Motilal Oswal has a buy rating on Syrma SGS Technology with a target price of Rs 550, a 26 per cent upside from the current trading price of Rs 436. The broker is bullish on the company’s 35 per cent revenue growth and margin expansion.

Jefferies also has a Buy rating on the stock with a target price of Rs 690, as Syrma has a better risk-reward profile than its peers Amber, Kaynes, and Dixon.

Still, in the early stages of growth, it would be interesting to see how Syrma SGS Technology rides India’s EMS growth wave and rewards its shareholders.

Note: We have relied on data from http://www.Screener.in throughout this article. Only in cases where the data was not available have we used an alternate but widely used and accepted source of information.

Puja Tayal is a financial writer with over 17 years of experience in the field of fundamental research.

Disclosure: The writer and her dependents do not hold the stocks discussed in this article.

The website managers, its employee(s), and contributors/writers/authors of articles have or may have an outstanding buy or sell position or holding in the securities, options on securities, or other related investments of issuers and/or companies discussed therein. The content of the articles and the interpretation of data are solely the personal views of the contributors/ writers/authors. Investors must make their own investment decisions based on their specific objectives and resources and only after consulting such independent advisors as may be necessary.