Guess which sector can actually gain from US tariff war?

A Rs 23,000-crore production-linked incentive (PLI) scheme for electronic components may boost margins and enable a broader product mix.

India's electronic manufacturing services (EMS) sector could be a comparative gainer from the current tariff war.

Also, a Rs 23,000-crore production-linked incentive (PLI) scheme for electronic components may boost margins and enable a broader product mix.

The component PLI scheme will increase domestic value addition. The key beneficiaries may be Dixon, Amber and Kaynes, among others.

This scheme targets non-semiconductor components with an incentive payout of Rs 23,000 crore against production of Rs 4.6 trillion or about 5 per cent incentive (similar to mobiles).

India itself is one of the fastest-growing markets in EMS with 6 per cent of global share, which is projected to rise to 8 per cent by 2028.

The China Plus One strategy would see India becoming an alternative manufacturing hub.

The Indian consumer electronics market was valued at Rs 1.3 trillion (FY23), and it could surpass Rs 2.5 trillion by FY28 with a compound annual growth rate (CAGR) of 14 per cent.

There's significant growth in domestic business-to-business (B2B) and business-to-consumer (B2C) printed circuit board assembly (PCBA) demand due to increased import duties.

Mobile PCBA imports reduced from Rs 30,000 crore in FY18 to almost nil in FY24.

The tariff scenario is uncertain but it increases the probability of more companies adopting the China Plus One strategy.

India's export of overall electronics products to the US grew to $11 billion in FY24 from $2.5 billion in FY20. And, around 50 per cent of this is from smartphones. This is only 2 per cent of overall US electronics imports.

India could be at a comparative advantage, given the sharp tariff hikes targeting China.

However, this scenario could change fast. EMS players like Amber, Dixon, Kaynes, EPACK Durable (EPACK), Syrma, Cyient DLM and Avalon may be in focus.

EPACK is India's second-largest original design manufacturer (ODM) of room air conditioners (room ACs) with 24 per cent market share. It's expanding its product mix and backward integration into components, and this may help with margins.

PG Electroplast (PGEL) is also a room AC and washing machine player expanding and diversifying into high-growth electronics and IT hardware.

New categories like LED TVs, laptops, computers, EMS, refrigerators and compressors should push up the earnings and revenue growth rates.

Amber is another ODM and original equipment manufacturer (OEM) in the room AC segment and a key beneficiary of the PLI.

It is looking at railways as a significant customer. Amber has made acquisitions like Ascent Circuits and expanded into PCB manufacturing.

It has inked a pact with Korea Circuits to manufacture Flex, HDI, semiconductor substrates, PCBs and has a JV with Resojet for washing machines.

A JV with Titagarh Rail gives Amber access to the European market.

Dixon is a rapidly growing, diversified EMS player. It has market leadership in consumer electronics, home appliances, lighting, and mobile phones. It is well positioned to expand into new, high-potential sectors.

Backward integration, a higher ODM mix, and focus on high-margin segments may sustain margins at 3.4 per cent till FY27. And, an improved working capital cycle may substantially improve return on capital employed.

Smartphone production may more than double between FY24 and F26. Dixon is intensifying backward-integration. A potential foray into display fabrication will hinge on the ISM 2.0 policy and the potential capital subsidy.

Kaynes has expanded its PCBA business across high-margin sectors, with 85 per cent order book growth over FY20-24.

It is also present in smart-meters through the acquisition of Iskraemeco. Kaynes aims to become India's first producer of packaged semiconductor chips by July.

Syrma is shifting focus towards broader, high-margin opportunities, having expanded its telecom business.

Growth may come in smart-meters and medical segments. Avalon, a major exporter, targets a 50:50 mix of export and domestic markets. Exports are currently under a cloud due to US tariff implications though there could be expansion to EU and Japan.

Cyient DLM will be a key player in the aerospace and defence sectors. But margins are low.

Cyient looks to expand its US manufacturing footprint and seeks entry into the US defence market through the acquisition of Altek Electronics.

Altek has International Traffic in Arms Regulations (ITAR) certification, which is mandatory for US defence contracts.

Feature Presentation: Ashish Narsale/Rediff.com