Leading electronics manufacturing services (EMS) companies have witnessed a dramatic correction, with shares plummeting as much as 53% from their respective peaks. Once considered market darlings riding the China-plus-one and PLI narratives, these stocks are now grappling with earnings uncertainty, policy risks, and valuation concerns.

Sharp Correction Across EMS Sector

The selloff has been broad-based and severe across the electronics manufacturing space:

What was once a broad-based rally has transformed into a savage correction, forcing a hard reset across the entire EMS ecosystem.

Multiple Headwinds Converge

Several factors have contributed to the sector-wide rout. A massive surge in memory chip (DRAM) prices is hampering smartphone demand and squeezing margins for Dixon Technologies, India's largest Android handset maker producing devices for Xiaomi, Motorola, Vivo, Oppo, Transsion and Realme. Regulatory overhang around pending government approvals for joint ventures threatens volumes and profitability from FY27 onwards.

Additional pressures include softer seasonal demand in consumer durables and the looming March deadline for the mobile PLI scheme expiration, casting shadows over future growth visibility. Company-specific troubles have deepened the pain, with Kaynes facing scrutiny over disclosure lapses and stretched working capital, while PG Electroplast suffered a weaker-than-expected summer season.

Analyst Views Remain Divided

Despite the steep correction, opinions on whether these stocks represent value remain contested. JP Morgan struck a contrarian note on Kaynes, calling the stock "below bear case" and the "cheapest on PEG" in its coverage universe at 0.7x versus peers' average of 1x. The firm maintained an overweight rating with a price target of ₹7,550, expecting "improving receivables and NWC over the next two quarters to be key drivers."

Sunny Agrawal, Head of Fundamental Research at SBI Securities, acknowledged the damage but defended the long-term thesis. "Yes, long term growth potential is intact. Individually, each of the businesses are facing short term headwinds," he said, citing Dixon's memory price and volume issues, PG Electroplast's weak summer season, and Kaynes' disclosure challenges. Post-correction, he sees better valuations emerging and prefers "stocks catering to consumer durable and PCB segments like Amber, Syrma, PG Electroplast, EPack durable."

Caution Against Premature Entry

However, Om Ghawalkar, Market Analyst at Share.Market, urged caution against rushing in. "Although EMS stocks like Kaynes, Dixon, and PG Electroplast have corrected 35–52% from their peaks, the sector may not be undervalued yet," he warned. "While the long-term growth story remains intact, investors should not assume the recent dip equates to a compelling buy signal."

Ghawalkar highlighted that rounded trailing multiples for leading EMS names continue trading well above broader manufacturing averages, reflecting high expectations of sustained execution and growth. With return on capital employed (ROCE) still normalising amid heavy PLI-driven capex, he argued that near-term earnings delivery will be critical to justify current multiples.

Operational Performance Remains Strong

Despite market concerns, EMS players have continued performing operationally, particularly in the seasonally strong March quarter. "Over the past several years, Q4 has consistently seen sharp revenue acceleration, driven by seasonality in consumer electronics, fiscal year-end order push from clients, and PLI-linked capacity ramp-ups," Ghawalkar noted. Peak capacity utilisation in Q4 often hits 80-90%, compared to much lower off-season levels.

Improving product mix and original design manufacturing (ODM) exposure have supported margin expansion across smart meters, electric vehicle components and industrial electronics. However, Ghawalkar advocated patience, suggesting retail investors "wait for upcoming earnings to validate growth and margin assumptions, while keeping EMS exposure within overall portfolio allocation."

The long-term India electronics manufacturing story, underpinned by policy support, export diversification and global supply-chain realignment, remains compelling across consumer, industrial and automotive electronics. However, rising competition and execution risks indicate the next phase of returns will be far more selective than the broad rally of recent years.

Dixon Technologies , India's largest Android handset manufacturer, has experienced significant stock volatility as multiple industry headwinds converge to pressure the company's performance. The stock reached a 52-week low last week and continued its decline with a 5% drop on Tuesday followed by another 1.16% fall on Wednesday.

Market Pressures Impact Stock Performance

The company manufactures smartphones for leading Android brands operating in India, including Xiaomi, Motorola, Vivo, Oppo, Transsion, and Realme. Market analysts have identified three primary factors contributing to the stock's decline:

Memory Chip Crisis Affects Budget Smartphone Demand

A global supply crunch in memory chips has particularly impacted demand for budget smartphones, which represent a significant portion of Dixon's production volumes. Memory components account for approximately 20% of the bill of materials for budget phones, making price fluctuations especially significant for manufacturers.

Analysts project substantial cost increases ahead, with memory chip prices potentially rising by 30% by April 2026. This surge has prompted volume projections to be revised downward.

Neel Mehta, senior research associate at Equirus Securities, noted the significant impact on volume expectations, stating that Dixon's original projection of 40 million units for FY26 is expected to drop to approximately 37-37.5 million units.

PLI Scheme Conclusion Creates Additional Challenges

The production-linked incentive scheme for mobile phones is set to conclude in March, creating additional pressure for electronics manufacturers. According to JM Financial's analysis, PLIs have historically contributed around 60 basis points to Dixon's mobile business margins, which typically range between 4-5%.

The company had been sharing incentives with customers who were unable to access scheme benefits directly, creating a competitive differentiator that will be lost once the program ends. JM Financial noted in their report that while Dixon has a strategy to mitigate risks to margin and volumes, execution has been delayed due to factors beyond the company's control.

Strategic Mitigation Measures

To address these challenges, Dixon has implemented several strategic initiatives focused on vertical integration and capacity expansion:

• Investment in display module sub-assembly manufacturing
• Development of camera module production capabilities
• Expansion into smartphone enclosure manufacturing
• Entry into lithium-ion battery production
• Strategic joint venture partnership with Vivo

An executive told ET that the company is continuing with its roadmap to handle expected scale increases once current headwinds subside, while simultaneously expanding capacity across multiple component categories.

Market Outlook

The convergence of rising input costs, regulatory uncertainties, and policy changes has created a challenging operating environment for Dixon Technologies. The company's efforts to diversify into component manufacturing represent a strategic shift toward greater vertical integration, though the timeline for these initiatives to offset current pressures remains uncertain given the external factors affecting execution.