Consumer Electronics Maker Stocks Gain Momentum, Rise Up To 25 Per Cent In One Month - Here’s Why

Shares of consumer electronics manufacturers have been on an uptrend over the past month following the Centre’s approval of a production-linked incentive (PLI) scheme for passive or non-semiconductor electronic components. The scheme, known as the Electronics Component Manufacturing Scheme (ECMS), has an outlay of Rs 22,919 crore for a tenure of six years, Union Minister for Electronics and Information Technology (MeitY) Ashwini Vaishnaw announced on March 28.

According to MeitY’s official website, ECMS aims to develop a robust component ecosystem by attracting large investments in the electronics component manufacturing ecosystem, by developing capacity and capabilities, and integrating Indian companies with Global Value Chains.

Kaynes Tech, DCX Systems, Dixon Tech Rally

Stocks like Dixon Technologies, DCX Systems, Kaynes Technology have rallied up to 25 per cent over the last month. Over the past month, since the announcement of ECMS, Kaynes has rallied over 25 per cent, Dixon has surged around 24.75 per cent, and DCX Systems has advanced 22.82 per cent. However, Amber Enterprises, a specialist in refrigeration and air conditioning systems and components has delivered a negative return of 11.45 per cent.

On April 28’s trade, Kaynes jumped over 6.5 per cent, DCX surged nearly 3 per cent, and Dixon rose over 1 per cent, adding to the gains. Amber Enterprises closed flat with a negative bias of 0.14 per cent.

Kotak Institutional Equities, in a report dated April 11, said, “We see both Dixon and Amber as favorably placed to achieve the turnover and capex targets.”

Electronics Manufacturing In India

MeitY had brought phased manufacturing programme, National Policy on Electronics 2019, and PLI schemes to boost electronics manufacturing in the country. As a result of these initiatives, the domestic production of electronic goods increased five times from Rs 1.90 lakh crore in FY15 to Rs 9.52 lakh crore in FY24 at a compound annual growth rate (CAGR) of more than 17 per cent, data on MeitY’s website showed.

Further, the PLI scheme for Large Scale Electronics Manufacturing (LSEM) also catalysed growth of electronics manufacturing led by mobile phones, resulting in exponential growth in electronics export from Rs 81,822 crore in FY21 to Rs 2,41,157 crore in FY24 at the CAGR of more than 43 per cent.

India’s Push For Electronic Component Manufacturing

According to Axis Capital’s report on the sector, from FY20 to FY24, growth in overall electronics production in India was led by mobile phones, which saw one of the highest CAGRs, around 19 per cent, among all the categories. This growth was largely driven by government initiatives, including customs duties, the phased manufacturing program (PMP), and PLI schemes, which helped establish a mobile assembly and manufacturing industry in India and reduce imports of finished mobile phones.

However, the report also pointed out a downside that emerged from the exponential growth in mobile manufacturing. There was a rise in component imports – indicating manufacturers are yet to co-locate their supply chains.

“As mobile manufacturing in India saw exponential growth between 2015 and 2021, the volume of component sourcing became significant. In the absence of local supply, imports have been the mainstay of the domestic assembly, and this dependence has become stronger with the increase in product assembly capacities. The gap between demand and domestic supply has widened alarmingly in the past four years, while domestic component supply has remained stagnant,” Axis said.

To fix this, the brokerage firm said, “The government has recently announced a component policy to support manufacturing of camera modules, display modules, battery packs, PCB, mechanics, electro mechanicals, and passive components. This is to address an import market of nearly Rs 1 trillion.”

With the increased focus on value addition, the brokerage firm expects the electronic component manufacturing industry to now move into higher capex and higher margin segments.