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EMS Industry Overview: Key Insights and Analysis

April 13, 2024


EMS (Electronics Manufacturing Services) consists of services such as designing, manufacturing, testing, distributing, and servicing electronic components and assemblies for OEMs.The Indian Electronics Manufacturing Services (EMS) market is poised to grow at a whooping ~41% CAGR over FY21-FY26E to ~Rs 5,980bn (FY21: Rs 1,069bn).

India has always been a major importer of electronics, with laptops/notebooks and TVs being the most commonly imported items. China and Hong Kong alone account for around 44% and 16% of these imports, respectively. On the other hand, India exports a significant amount of mobile phones and ECUs, with the United States and the UAE being the largest export destinations.

The electronics manufacturing industry in India is divided into two categories: in-house production by OEMs and production by EMS companies. Mobile phones and consumer electronics are the most prominent sectors in terms of industry application. If mobile manufacturing shifts to India on a global scale, it will create a manufacturing boom in this segment. Currently, most domestic players follow the build-to-print model, which requires general assembly lines, rather than the build-to-specification model that requires specific assembly lines.

PCBA (Printed Circuit Boards assembly)

PCB, or Printed Circuit Boards, contains important parts like flash memory, application processors, and various semiconductor-based components. Currently, these parts are sourced from international suppliers for the PCB ecosystem in India. The complete assembly, known as PCBA, includes bare PCB, passive components, active components, electromechanical components, and associated components. Higher complexity of PCB components in end products leads to a superior margin profile.

Advancement to PCBA: Box-build share

Along with PCBA, when integrated services – such are concept design, hardware design, prototyping, engineering, integrating PCBAs, testing, monitoring, installing the enclosure, packaging, and after sale services – are provided it is referred to as box-build share. A higher box-build share indicates a larger profit margin.

Advancement to Box-build: ODM (Original design manufacturing)

The ODM model generates a greater profit margin of around 500-700 basis points compared to the conventional EMS business. ODMs maintain ownership of their design, which enhances their bargaining position. OEMs face challenges in changing suppliers due to the design rights held by ODM players.

EMS players based on operations: LVHM vs HVLM

High volume, low mix/margin (HVLM):

In this manufacturing contract, the main focus is on producing a small number of assembly types in large quantities. This helps to reduce the need for frequent changes and ensures that production capacity is fully utilized, leading to higher asset turnover. Companies that follow this approach are more efficient when dealing with large volumes and require minimal engineering input. This model is commonly used in industries such as consumer electronics, peripherals, and IT hardware.

Low volume, high mix/margin (LVHM):

This type of contract manufacturing focuses heavily on quality and customization to meet customer requirements. The production process remains unaffected by market changes due to the high-profit nature of the products. Original Equipment Manufacturers (OEMs) who choose this option are willing to pay higher prices to guarantee quality and flexibility. Industries such as industrial, automotive, medical, and aerospace and defense sectors generally have higher profit margins.

The growth of the Indian Electronics Manufacturing Services (EMS) sector is propelled by several key drivers:
  1. Increasing Demand for Electronics:
    India's growing population, rising disposable incomes and rapid urbanization have led to a surge in demand for electronic devices such as smartphones, laptops, consumer electronics, and automotive electronics. This sustained demand creates opportunities for EMS companies to expand their manufacturing operations to meet consumer needs.
  2. China +1 strategy & Rising Cost Competitiveness:
    India offers cost advantages in terms of labor and operational expenses compared to other manufacturing hubs such as China. With the increasing focus on cost optimization by global companies, India has emerged as an attractive destination for outsourcing manufacturing activities, driving the growth of the EMS sector.
  3. Government Initiatives to Promote Domestic Manufacturing:
    The Indian government has launched various initiatives such as Make in India, Atmanirbhar Bharat (Self-Reliant India), Production Linked Incentive (PLI) schemes, and Electronics Manufacturing Clusters (EMCs) to promote domestic manufacturing and reduce dependence on imports. These initiatives provide incentives and support to EMS companies, encouraging them to invest in and expand their manufacturing capabilities in India.
  4. Emergence of New Technologies:
    The rapid advancements in technologies such as Internet of Things (IoT), Artificial Intelligence (AI), 5G, and electric vehicles (EVs) are driving demand for innovative electronic products and solutions. EMS companies that can adapt to these technological trends and offer specialized manufacturing and engineering services are well-positioned to capitalize on emerging opportunities.
  5. Shift towards ODM and Value-added Services:
    There is a growing trend towards Original Design Manufacturing (ODM) and value-added services in the EMS sector. Companies are moving beyond traditional contract manufacturing to offer design, engineering, prototyping, and aftermarket services. This shift towards higher value-added services enhances the competitiveness and differentiation of Indian EMS companies in the global market.
Key challenges for the industry:
  1. Higher customer concentration risk:
    High customer concentration can be risky because it means relying heavily on a few customers for revenue, having less bargaining power, and being more susceptible to changes in the market.
  2. Import dependency:
    The industry is at high risk when it comes to sourcing raw materials because it relies heavily on imports for over 60% of its essential materials. This dependence leaves it vulnerable to geopolitical crises that could disrupt the sourcing process and affect profits.
  3. Supply chain issues:
    Recently, the main difficulty EMS faced was the shortage of semiconductors. Indian ESDM firms heavily depend on international sources for semiconductors, causing delays and price hikes, ultimately impacting short-term revenues.

Indian companies gearing up to ride on the Indian electronic manufacturing wave

Kaynes Technology Ltd.

Kaynes Technology India (KAYNES) is a leading player in end-to-end IoT-enabled system design and manufacturing (ESDM) services. With rich experience, it offers conceptual design, process engineering, and life-cycle support across diverse industries, including automotive, aerospace, defence, healthcare, and IoT. Apart from PCBA, KAYNES is increasing value-added (box-build/ODM) share from current OEMs and new customers. To enhance operational efficiency with first-mover advantage, the company is also foraying into OSAT and PCB manufacturing businesses.

Syrma SGS Technology Ltd.

Syrma SGS (SYRMA) is a technology-driven engineering firm providing turnkey EMS, specialising in precision manufacturing for diverse industries. Notably, it was the first Indian company to manufacture floppy drives for IBM PCs and is a prominent global manufacturer of custom RFID tags. It offers PCBA, RFID products, electromagnetic and electromechanical parts, and various other products.

Cyient DLM Ltd.

Cyient DLM Ltd one of the leading integrated Electronic Manufacturing Services (“EMS”) and solutions providers with capabilities across the value chain and the entire life cycle of a product. It has over 22 years of experience in developing high-mix, low-to-medium volume highly complex systems, and is a qualified supplier to global OEMs in the aerospace and defence, medical technology, and industrial sectors. ‘Low volume, high mix’ (LVHM) is a type of contract manufacturing setup which typically has a very high emphasis on quality and customization which changes according to the requirements of the customer. Their solutions mainly include printed circuit board assembly (PCBA), cable harnesses, and box builds used in critical systems like cockpits, inflight systems, landing systems, and medical diagnostics equipment.

Avalon Technologies Ltd.

Incorporated in 1999, Avalon Technologies Limited is a leading fully integrated Electronic Manufacturing Services ("EMS") company. They have end-to-end capabilities in delivering box-build solutions in India, focusing on high-value precision engineered products. Through a unique global delivery model, Avalon offers a full stack product and solution suite, right from printed circuit board (PCB) design and assembly to the manufacture of complete electronic systems (Box Build), to certain global original equipment manufacturers (OEMs), including OEMs located in countries like China, Netherlands, United States, and Japan. The offerings of Avalon Technologies Limited include PCB design and assembly, cable assembly and wire harnesses, sheet metal fabrication and machining, magnetics, injection molded plastics, and end-to-end box build of electronic systems. With its notable specialization in manufacturing and providing design support for critical integrated assemblies, sub-assemblies, components, and enclosures for multiple industry verticals, they help customers receive the best of services.

Amber Enterprises Ltd.

Incorporated in 1990, Amber has emerged as a market leader in the Indian room AC OEM/ODM industry. The company’s comprehensive product portfolio includes room AC (indoor and outdoor units as well as window ACs) and reliable critical components, which have a long approval cycle. The company is one of the largest manufacturers and suppliers of critical components such as heat exchangers, PCBs, motors, sheet metal, case liner etc. of RAC and other consumer durables such as refrigerators and washing machines. Amber has emerged as a market leader in the Indian RAC OEM/ODM industry with more than 70% market share and 26.5% market share in the overall RAC market in FY2023. The company has 15 manufacturing facilities strategically located close to customers, enabling faster turnaround. The company also has a high degree of backward integration coupled with strong R&D capabilities, resulting in a high proportion of ODM. The company has been serving a majority of customers for over five years and has a marquee customer base as eight out of the top 10 RAC brands are its clients.

Dixon Technologies Ltd.

Dixon Technologies Ltd., incorporated in 1993 by Mr. Sunil Vachani, is a diversified Electronic Manufacturing Services (EMS) company with operations in the electronic products vertical such as consumer electronics, lighting, home appliance, closed-circuit television cameras (CCTVs) and mobile phones. Besides, it manufactures security surveillance equipment, wearables and hearables, AC-PCBs. Recently, it has entered a JV with Imagine Marketing Private Limited for designing and manufacturing wireless audio solutions in India.

Its product portfolio includes (i) consumer electronics like LED TVs; (ii) home appliances like washing machines; (iii) lighting products like LED bulbs and tubelights, downlighters and CFL bulbs; and (iv) mobile phones. They also provide solutions in reverse logistics i.e. repair and refurbishment services of set top boxes, mobile phones and LED TV panels. The company is a fully integrated end-to-end product and solution suite to original equipment manufacturers (“ OEMs”) ranging from global sourcing, manufacturing, quality testing and packaging to logistics. They are also a leading Original Design Manufacturer (“ODM”) of lighting products, LED TVs and semi-automatic washing machines in India. As an ODM, it develops and design products in-house at our R&D centre. It also manufactures and supplies these products to well-known companies in India who in turn distribute these products under their own brands.

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