Sector Snapshot: Q3 2026
- Avg. revenue growth: 30%
- FY27 PE multiple: 41-43x
- FY28 PE multiple: 30-33x
The outperformers: Amber and Syrma set the pace
Amber Enterprises: The diversification success story
Amber Enterprises has emerged as a standout performer, delivering results that significantly exceeded both analyst estimates and peer performance. The company’s success story spans multiple business segments, showcasing the strength of its diversified strategy.
Consumer durables division: The core RSC (Room Air Conditioner) contract manufacturing business posted impressive 26-27% growth with notable margin improvement, demonstrating robust demand despite broader consumer weakness in other categories.
EMS expansion: Driven by inorganic expansions, the EMS segment delivered exceptional topline growth while achieving double-digit margins for the first time. Management has guided for sustained double-digit margins going forward, with inorganic acquisitions expected to contribute meaningfully in coming years.
“Growth wise if I look at, way forward Amber looks quite promising,” Sahay emphasized, highlighting the company’s strong positioning across its business verticals.
Syrma SGS: Order book momentum and margin expansion
Syrma SGS Technology delivered an impressive quarter that beat expectations, backed by fundamental improvements in business quality and future visibility.Syrma’s key achievements
- Strong quarterly numbers exceeding analyst estimates
- Order book growth of 10% sequentially, providing revenue visibility
- Margin guidance upgrade by 100 basis points on improving segment mix
- Segment shift toward higher-margin industrial and automotive from consumer electronics
The strategic pivot toward industrial and automotive segments represents a crucial inflection point for Syrma. These segments typically command premium margins compared to consumer electronics, and their increasing contribution is expected to drive sustained margin improvement over the medium term.
Post-results performance: Syrma’s stock has already experienced a significant runup following the earnings announcement, leaving limited room for immediate valuation catchup according to Sahay’s analysis.
Avalon Technologies: The consistent outperformer
Avalon Technologies continues its track record of exceeding conservative guidance, having outperformed for three consecutive quarters. The company’s management maintains a deliberately conservative approach to guidance, consistently delivering results that surpass expectations.
Valuations: Premium but backed by growth
The EMS sector trades at a significant premium to broader market valuations, reflecting investor confidence in the structural growth story. However, Sahay emphasizes that companies demonstrating superior order book growth and margin improvement trajectory are likely to continue outperforming from current levels, justifying their premium valuations.
“Those who have outperformance in order book and the guidance related to improvement in the margin I believe they are going to outperform from here as well,” Sahay noted, identifying the key differentiators for investment selection within the sector.
Dixon Technologies: The comeback narrative
While PL Capital doesn’t officially cover Dixon Technologies, Sahay provided perspective on the company’s recent performance and outlook given its significance in the EMS landscape.
Dixon’s valuation compression
The stock has experienced substantial PE multiple compression over the past five years, creating a potential margin of safety for investors. The Q3 correction was driven by below-estimate numbers, but management commentary suggests improving fundamentals ahead.
Key positive developments:
- Client-specific issues expected to be resolved in the coming year
- Mobile segment growth anticipated to accelerate going forward
- Margin improvement particularly in the mobile division
- Margin uptick visible in Q3 results with management demonstrating confidence in continued trajectory improvement
Management has maintained guidance despite the Q3 miss, expressing confidence that mobile segment challenges are temporary and margin expansion remains on track. The combination of valuation compression and improving fundamental outlook has caught investor attention.
The structural growth story: Why EMS remains attractive
Sector tailwinds driving growth
PLI scheme benefits: Production Linked Incentive programs across electronics, IT hardware, and telecom creating sustained demand
China+1 strategy: Global brands diversifying manufacturing away from China toward India
Domestic consumption: Rising consumer electronics and appliance demand in India
Margin mix improvement: Shift from consumer electronics to industrial and automotive segments expanding profitability
Scale benefits: Leading players achieving operational leverage as volumes grow
Inorganic growth: Strategic acquisitions adding capabilities and expanding addressable market
Investment strategy: Picking winners in a premium sector
With the sector trading at elevated multiples, Sahay’s framework for identifying outperformers focuses on three critical metrics:
The 3 pillars of EMS stock selection
1. Order book trajectory: Sequential order book growth provides revenue visibility and indicates market share gains. Companies showing consistent order book expansion are better positioned to sustain growth momentum.
2. Margin improvement guidance: Management’s ability to deliver on margin expansion promises separates leaders from laggards. The shift toward higher-margin segments must translate into actual EBITDA improvement.
3. Execution track record: Consistent performance relative to guidance demonstrates operational excellence and management credibility. Companies that habitually exceed conservative guidance warrant premium valuations.
Risks to monitor
While the sector outlook remains constructive, investors should remain cognizant of potential headwinds:
- Valuation risk: At 41-43x FY27 earnings, the sector offers limited margin for disappointment
- Execution risk: Margin expansion thesis depends on successful segment mix shift
- Client concentration: Some EMS players remain heavily dependent on a few large clients
- Consumer demand: Weakness in consumer durables could impact volume growth for contract manufacturers
- Competition: New capacity additions across the industry could pressure pricing power
Selective opportunities in a hot sector
The EMS sector’s 30% growth rate and improving margin profile justify premium valuations, but stock selection is critical. Amber Enterprises offers the most compelling risk-reward for new investments, while Syrma and Avalon suit different investor profiles. Dixon’s valuation compression creates an interesting recovery play for contrarians willing to bet on management’s turnaround narrative. As the sector matures, winners will be distinguished by order book growth, margin execution, and ability to capitalize on the structural shift toward higher-value segments.