The Indian electronics manufacturing services (EMS) sector is moving from basic assembly to high-value component production following recent customs duty cuts and a ₹40,000 crore government incentive boost. Leading firms are diversifying their business models to capture better profit margins. Investors should watch how these companies manage the challenge of high import dependency and the complexity of moving into advanced manufacturing.
The Indian electronics manufacturing services (EMS) sector is undergoing a major change. Historically, most large EMS companies in India focused on simple assembly work, such as putting together smartphones or home appliances. This business model typically offers thin profit margins, often ranging between 2% and 4%, because the assembly process is easy to replicate and does not require complex technical capability.
However, the government’s recent policy moves, specifically the 2026 budget changes, are pushing these companies to change their strategy. The government reduced the Basic Customs Duty on key manufacturing inputs—including mobile phones, printed circuit boards (PCBs), and chargers—from 20% to 15%. Additionally, the Electronics Component Manufacturing Scheme (ECMS) has been expanded with a net outlay of ₹40,000 crore. These measures aim to help domestic companies move beyond simple assembly and start making the high-value components themselves.
Major players like Dixon Technologies, Amber Enterprises, Kaynes Technology, and Syrma SGS are now aggressively expanding into areas such as precision mechanical components, semiconductor-related assemblies, and specialized PCBs. By manufacturing these parts in-house, these companies hope to capture the higher profit margins that come with complex component production, rather than relying on thin margins from assembly-only contracts.
While this shift promises better profitability, it also comes with real challenges. A primary concern for the industry remains its heavy reliance on imports for critical electronic components, with many firms still depending on foreign sources for 80% to 95% of their essential inputs. This structural dependency cannot be resolved overnight and remains a significant risk to the supply chain.
Investors must also consider the risks associated with this transition. Moving into advanced manufacturing—such as aerospace, defense, or medical electronics—is not as straightforward as basic assembly. It requires significant investment in technology and skilled labor, which brings the risk of delays or cost increases. Additionally, the sector is becoming increasingly competitive, with both domestic firms and global players vying for market share. If these companies cannot successfully execute their plans or if the anticipated cost savings from the duty cuts are offset by other rising expenses, profit margins may not improve as quickly as expected.
The next phase of growth for these firms will depend on their ability to stabilize these new production lines and reduce import dependency over time. Market participants will likely track whether these companies can maintain their current growth levels while investing heavily in these new, complex capabilities. The sustainability of margin expansion will be the key monitorable for shareholders in the coming quarters.