Can EMS stocks sustain strong revenue growth despite near-term margin pressure in Q4 FY26?

Synopsis: EMS sector is expected to deliver strong Q4FY26 revenue and profit growth led by Kaynes, Syrma, and Avalon, while margins may soften slightly, with order book momentum supporting future expansion.  

The Electronic Manufacturing Services (EMS) sector is expected to see strong Q4FY26 growth driven by robust order execution and rising demand in automotive, industrial, and clean energy segments. Despite mild margin pressure from commodity costs and currency depreciation, the sector outlook remains positive with strong order inflow and focus on high-margin businesses.

Prabhudas Lilladher remains positive on the EMS sector, expecting 26.6 percent  YoY revenue growth, 20.5 percent  EBITDA growth, and 26 percent  PAT growth in Q4FY26, Strong order books, cost rationalization, and higher-margin segments are expected to support sustained earnings growth in the coming quarters. 

Revenue Momentum Intact, Margins Soft

EMS companies under coverage are expected to report 26.6 percent  YoY revenue growth in Q4FY26, mainly driven by strong performance in Kaynes, Syrma, and Avalon with revenue growth of around 60 percent , 37.8 percent , and 21.3 percent  respectively. However, sector margins are expected to decline by 50 bps to 9.9 percent , mainly due to commodity cost pressure and currency depreciation impacting Amber Enterprises. Despite this, overall profit is expected to grow by around 26 percent  YoY, supported by better order execution and higher contribution from high-margin segments. Looking ahead, pickup in order books and focus on high-margin sectors are expected to support margin expansion in future quarters.

Amber Enterprises is expected to grow around 19 percent  YoY, supported by 54.4 percent  growth in EMS segment due to inorganic expansion. Avalon Technologies is likely to grow 21.3 percent  YoY, driven by Mobility (15 percent ), Industrial (58 percent ), and Clean Energy (36 percent ) segments. Cyient DLM is expected to report flat YoY revenue, with Altek contributing around 17 percent  to the topline. Kaynes Technology is expected to grow 59.6 percent  YoY, led by Automotive (50 percent ), Industrial (82 percent ), and Medical (19 percent ) segments, while Syrma SGS Technology is expected to grow 38 percent  YoY, driven by Auto (35 percent ) and Industrial (43 percent ) segments, contributing 23 percent  and 43 percent  to revenue respectively.

Margin Performance in Q4FY26

Margins across EMS companies are expected to decline by around 50 bps YoY to 9.9 percent , mainly due to Cyient DLM, which is expected to see a 390 bps margin contraction to 9.5 percent  due to a high base effect. In Q4FY25, Cyient had reported a 13.4 percent  EBITDA margin, and after adjusting for one-offs, margins were 10.9 percent , making the current decline more visible. Amber Enterprises is also expected to see margin pressure due to commodity costs and currency depreciation, while other companies are expected to maintain relatively stable margins supported by cost control and operational efficiency

Company-wise Profit Growth Outlook

Profit growth is expected to remain strong across most EMS companies. Amber Enterprises is likely to report 5.8 percent  YoY PAT growth, Avalon Technologies 33.2 percent , Kaynes Technology 31.3 percent , and Syrma SGS Technology 76.5 percent  YoY growth, reflecting strong operating performance and segmental growth. However, Cyient DLM is expected to report 28.6 percent  YoY decline in PAT, mainly due to margin contraction and flat revenue performance. Overall, sector profit growth remains healthy due to strong demand and improved operating leverage. 

Key Changes in Estimates and Outlook

The brokerage has downward revised FY27 and FY28 earnings estimates across most companies except Amber and Avalon while maintaining existing ratings. The outlook remains positive as EMS companies continue to benefit from strong demand, increasing localization, expanding opportunity market, and strategic focus on high-margin sectors, which is expected to drive long-term growth and margin improvement.

CompanyTarget PriceCurrent Price~Upside/ downside Amber Enterprises86467,25619% Avalon Technologies11751,05811% Cyient DLM3273154% Kaynes Technology54443,89741% Syrma SGS Technology9058675%

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