Investec positive on EMS stocks, but highlights some concerns — Check its top picks

Brokerage firm Investec on Tuesday, February 4, said it is positive on electronic manufacturing services (EMS) space, but has some concerns as well.The brokerage upgraded its rating on Kaynes Technology Ltd. and Syrma SGS Technology Ltd. to “hold” from “sell”, following a sharp price correction in the stocks, with valuations now looking reasonable. Shares of Kaynes Tech have dropped 46% and Syrma SGS Tech have declined 33% so far this year.
While the brokerage is convinced about the growth opportunity in the EMS space, it remains concerned about low barriers to entry, high working capital intensity, and weak cash flow generation for these companies.
Despite upgrading its rating on Kaynes Tech and Syrma SGS, Investec wrote in its note that it prefers stocks like Dixon Technologies Ltd. and Amber Enterprises Ltd. from the EMS space.Investec said Dixon Tech’s capital efficiency, cost competitiveness and the management’s opportunistic approach stands out.

In the case of Amber Enterprisese, while its consumer durable business faces competitive pressure, its electronics and railways businesses saw healthy Returns on Invested Capital (RoIC) and faces compelling growth drivers, the brokerage said.Here is a summary of the coverage analysts have on the mentioned stocks:

Stock	Buy	Hold	Sell
Kaynes Tech	17	5	1
Syrma SGS Technology Ltd	20	3	1
Dixon Tech	17	5	9
Amber Enterprises	21	5	1

Shares of Kaynes Tech have recovered from opening lows to trade 0.8% higher at ₹4,166.6.Shares of Syrma SGS are trading 3.2% higher at ₹431.9.

Shares of Dixon Tech too have recovered from opening lows and are trading 0.6% higher at ₹14,130, while those of Amber Enterprises are still trading in the red, down 0.2% at ₹5,645.

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