Shares of Syrma SGS Technology Ltd surged 3.15% to ₹431.65 after Investec upgraded the stock to ‘Hold’ from ‘Sell’, with a target price of ₹460. This upgrade follows a significant correction in the share price, which has made the valuation more attractive.
Investec remains bullish on the broader Electronics Manufacturing Services (EMS) sector, citing significant growth opportunities within the industry. However, the brokerage raised concerns about the sector’s challenges, such as:
- Low barriers to entry, which could increase competition within the industry.
- High working capital intensity and weak cash flow generation, particularly for companies like PCBA (Printed Circuit Board Assembly).
Despite these concerns, Investec remains positive on Syrma SGS, believing that the company has a promising future within the EMS sector.
Among EMS players, Investec continues to favor Dixon Technologies and Amber Enterprises, noting:
- Dixon Technologies has strong capital efficiency, cost competitiveness, and a highly agile management approach.
- Amber Enterprises maintains strong RoICs (Return on Invested Capital) in its Electronics and Railways segments, although its consumer durables business is facing competitive pressure.
Investec’s report emphasizes selective stock-picking in the EMS sector, given the business model challenges that can arise, urging investors to approach the sector with caution despite the growth potential.
