'I think market is making a mistake' — ICICI Pru AMC Co-CIO on why he avoids EMS companies

About this update from Dixon Technologies (india) Ltd.

Anish Tawakley, Co-CIO (Equity) of ICICI Prudential AMC has been avoiding EMS companies such Dixon Technologies Ltd., Kaynes Technology Ltd. and their peers. In an interaction with CNBC-TV18 on Thursday, December 18, Tawakley explained his rationale behind avoiding the space, that has been a wealth creator, barring the recent volatile sell-off and fall from peaks. "I am not sure of the competitive advantage these guys have built. I think the market is making a mistake by giving a multiple to PLI earnings," Tawakley said, adding that these are non-recurring earnings and the real way to value these EMS companies is to exclude the PLI income from the profits. Tawakley also highlighted a consequence of the market valuing EMS companies inclusive of the PLI benefits. He gave the example of a company who gets a PLI of ₹1,000 crore and as a result of which, its market capitalization goes up between ₹10,000 crore to ₹15,000 crore. It means there was opportunity to write-off ₹1,000 crore and create ₹10,000 crore in value. EMS companies have been wealth creators in the recent past with shares of Dixon Tech running up from levels of ₹760 at the end of 2020 to as high as ₹18,000 at the end of 2024. Shares of Kaynes Tech also have jumped over 10x over the last five years. Syrma SGS shares also jumped nearly 150% in 2023. "I say, look, what are we saying about ourselves in the financial markets, that here was this great opportunity, which we, as with all the leading mutual funds, venture capitalists, private equity investors, sitting here were not willing to fund but now that the government has funded by ₹1,000 crores, we are willing to back it. So I find this whole EMS, which is backed by PLI valuation completely - I can't understand," he said. Owing to the recent sell-off seen during the October-December period, the shares of these companies have corrected between 35% to 50% from their respective peaks.Watch the entire conversation right here.

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