Whalesbook
Dixon Technologies (India) Limited and Kaynes Technology India Ltd. shares plummeted by up to 50% as a euphoric sector rally unwound, leaving valuations detached from fundamental performance. This sharp correction highlights the risks associated with investing in stocks that have surged excessively.
Sectoral Tailwinds Remain
Despite the individual stock volatility, the broader Electronic Manufacturing Services (EMS) sector continues to benefit from significant tailwinds. These include India's drive for import substitution, increasing electronics penetration, the China+1 strategy, and strong government support through initiatives like the Production Linked Incentive (PLI) Scheme. The PLI scheme has already attracted substantial investment, bolstering domestic manufacturing capabilities across key sectors.
Syrma SGS Technology: Margin-Led Shift
Syrma SGS Technology is navigating the downturn by strategically shifting its revenue mix towards higher-margin industrial and automotive segments, away from the consumer vertical. This pivot has reduced near-term revenue growth but significantly boosted EBITDA margins by 370 basis points to 10.7% in H1 FY26. Net profit nearly doubled to ₹116.3 crore on revenue that grew 4.4% year-on-year to ₹2,093 crore. The company boasts an order book of approximately ₹5,800 crore, providing strong visibility for the next 1.5 years and expects to exceed its full-year margin guidance.
Syrma is also diversifying into defense (via Elcome acquisition), PCB manufacturing with trial production expected by Q3 FY27, and solar energy solutions. Growth in automotive is anticipated from electric vehicle adoption and increased electronic content, while industrial growth will be driven by data centers and power electronics. Smart metering business is also projected to contribute over ₹300 crore in full-year revenue.
Avalon Technologies: Precision and Global Reach
Avalon Technologies, an integrated EMS provider with a unique dual-shore presence including manufacturing facilities in the United States, is focusing on high-precision, long-term product lifecycle industries. Its key segments include Aerospace, Defense, Clean Energy, and Railways, with mobility and transportation accounting for 27% of revenue, followed by industrials at 34%.
The company's U.S. operations help manage local requirements and tariffs, with production often transitioning to its cost-effective Indian base. In H1 FY26, India-based manufacturing contributed 81% of total revenue, while U.S. operations made up 19%. Avalon is also expanding into the semiconductor equipment space and expects commercial production for the Kavach railway safety system in H2 FY27.
Financially, Avalon reported a revenue surge of 48.7% year-on-year to ₹706 crore in H1 FY26, with EBITDA expanding 98.5% to ₹68 crore. Margins improved to 9.7%, and net profit jumped 158.3% to ₹39 crore. The company holds an order book of ₹1,863 crore, with additional long-term contracts totaling ₹1,168 crore.
Valuations Under Scrutiny
While Syrma's return ratios (RoCE 11.7%, RoE 9.5%) are improving due to its strategic shift, it trades at a P/E of 59.2x. Avalon's return ratios are slightly better (RoCE 12.8%, RoE 10.4%), but it trades at a higher P/E of 70.0x. Both companies are deliberately sacrificing short-term growth for higher-quality, margin-led businesses, but their valuations remain demanding compared to the broader market.