Whalesbook
India’s electronics manufacturing sector is set for rapid growth, with projections hitting $97 billion by FY29. Domestic players like Centum Electronics and Aimtron Electronics are moving beyond simple assembly into complex, high-margin design and manufacturing. While this offers expansion opportunities in defense and data centers, investors should carefully track how these companies manage the associated cash flow pressures and capital spending needs.
What Happened
India’s Electronics System Design and Manufacturing (ESDM) industry is undergoing a significant transformation. As global supply chains diversify away from traditional manufacturing hubs, India is emerging as a key player. The market is expected to grow from $29 billion in FY24 to $97 billion by FY29. Companies like Centum Electronics and Aimtron Electronics are at the forefront of this shift, moving away from low-margin, high-volume assembly toward complex, high-value manufacturing services in sectors like defense, aerospace, and data centers.
Why This Matters For Investors
For years, the Indian electronics manufacturing services (EMS) sector was known primarily for basic assembly. The shift currently underway is important because it represents a move toward "design-led" manufacturing. Instead of just putting parts together, companies are now offering integrated solutions, including product design and systems building. This typically commands higher profit margins compared to simple assembly work. Companies that successfully capture this move stand to improve their long-term profitability, though it requires significant investment in research and development and specialized infrastructure.
Centum Electronics: Balancing Growth and One-Time Losses
Centum Electronics operates in two distinct areas: Electronics Manufacturing Services (EMS) and Build-To-Specification (BTS). The BTS segment is the core focus for growth, as it involves creating mission-critical products for space, defense, and aerospace, which currently earn EBITDA margins around 20%, significantly higher than the 9-11% margins seen in its standard EMS business.
In FY26, Centum reported a standalone revenue of ₹973.1 crore, a 25% increase, with EBITDA rising by 28%. However, the company posted a net loss of ₹117.1 crore. This loss was not necessarily due to bad operational performance but was driven by a one-time accounting impairment of ₹203.3 crore related to its overseas subsidiaries. The company is now actively divesting these underperforming international assets to focus on its domestic growth. Investors should monitor how effectively the company executes its ₹40-45 crore investment plan, which prioritizes R&D for the high-margin BTS segment.
Aimtron Electronics: Aggressive Expansion and Cash Flow
Aimtron Electronics is pursuing a different strategy, focusing on ODM (Original Design Manufacturer) services where the company designs products for clients and handles mass manufacturing. The company is growing rapidly, with FY26 revenue at ₹301.2 crore, up 89% year-over-year. Aimtron has set an ambitious target of reaching ₹1,000 crore in revenue within 3-5 years.
To achieve this, Aimtron acquired AIC, a US-based entity, to expand its global footprint and capabilities. This rapid expansion came with a trade-off: a negative cash flow of ₹40 crore in FY26. While aggressive growth can build market share, it requires careful monitoring of cash reserves. The company is banking on new projects in data centers and 5G networking equipment to justify these investments. It also plans to add new manufacturing capacity in Gujarat by Q4FY27 to support future demand.
How Investors May Read This
The current trend shows that the Indian EMS sector is maturing. However, this transition is not without risk. Investors should watch the execution of these capital-intensive plans. For Centum, the key will be sustaining the growth of its BTS segment to improve overall margins. For Aimtron, the focus should be on whether it can turn its aggressive expansion into positive cash flow while maintaining its 21% margins.
What Investors Should Track Next
Investors should look for three main things in the coming quarters. First, project execution timelines: both companies have expansion plans, and any delay could increase costs. Second, margin trends: watch whether the shift to high-value products actually leads to improved operating margins. Third, cash flow management: especially for companies like Aimtron that are using acquisitions and heavy investment to drive growth, ensuring that cash generation keeps up with spending is essential for long-term health.
