Kaynes Technology India Limited - The EMS giant in making

About Kaynes Technology India Limited

Kaynes Technology India Limited is a leading player in the electronics manufacturing services (EMS) industry in India. Established in 2008, the company specializes in providing end-to-end solutions for electronic manufacturing, including design, assembly, testing, and logistics. Kaynes serves various sectors, including automotive, industrial, aerospace, and telecommunications, with a comprehensive product portfolio that encompasses over 300 electronic products. The company is recognized for its commitment to quality, innovation, and customer satisfaction, and it has established a strong presence in both domestic and international markets.

Business Verticals:

OEM - Turnkey - Box Build (39%): Specializes in delivering ‘Build To Print’ or ‘Build to Specialization’ services, catering to diverse industry verticals from complex box builds to sub-systems.

OEM - Turnkey Solutions - Printed Circuit Board Assemblies (PCBAs) (56%): Encompasses PCBAs, cable harnesses, magnetics, and plastics, ensuring seamless manufacturing from prototyping to mass production.

Original Design Manufacturing (ODM) (2%): Offers solutions such as smart metering, smart street lighting, BLDC technology, and IoT solutions.

Product Design & Engineering (3%): Provides engineering services including embedded design, firmware and software development, and mechanical design.

Order Book: As of January 2024, the order book stands at ₹3,789 crore, up from ₹3,000 crore in June 2023, with an average order value increasing to ₹9.1 million in Q3 FY24 compared to ₹5.5 million in FY21.

Customer Base: Notable clients include Siemens, Hitachi, IJL, Agappe, Tonbo Imaging, and Iskraemeco, among others.

Manufacturing Facilities: Kaynes operates 14 manufacturing facilities across various states in India, equipped with 18 SMT lines, 70 THD lines, 26 cable harness lines, and 15 plastic molding machines.

Expansion Plans: The company is setting up a new manufacturing facility in Karnataka and expanding existing facilities in Mysore and Manesar, as well as establishing an OSAT facility in Telangana. Kaynes has signed MoUs with the Governments of Telangana and Karnataka for investments totaling ₹6,550 crore to develop OSAT and PCB facilities.

Acquisition: In December 2023, Kaynes acquired 100% of Digicom Electronics Inc. (USA) for USD 2.5 million, enhancing its electronics manufacturing capabilities.

Fund Raising via QIP: In December 2023, the board approved the allotment of 57,75,577 equity shares at ₹2,424 per share, aggregating to ₹1,400 crore.

Business Strategy:

Kaynes Technology’s business strategy revolves around innovation, quality, and expansion. Key elements include:

Focus on High-Value Markets: Targeting industries like automotive and aerospace, which demand high reliability and quality in electronic component.

R&D and Innovation: Investing in research and development to innovate and enhance product offerings, staying ahead of technological advancements.

Geographic Expansion: Exploring opportunities to expand into international markets, thereby increasing revenue streams and reducing dependence on the domestic market.

Strategic Partnerships: Collaborating with key players in various sectors to strengthen its market position and enhance product capabilities.

Sustainability Initiatives: Committing to sustainable practices in manufacturing to meet global standards and customer expectations.

Business Model:

Kaynes Technology operates a business model characterized by:

Electronics Manufacturing Services (EMS): Providing a range of services from design to manufacturing and after-sales support.

Customized Solutions: Tailoring products to meet specific client needs, which helps in building long-term client relationships.

Lean Manufacturing Practices: Implementing efficient production processes to minimize waste and reduce costs while maintaining quality standards.

Board of Directors:

Key leadership includes:

K. S. Kumar (CEO): Leading the company with a vision for growth and innovation.

R. B. Shenoy (CFO): Responsible for financial strategy and management.

V. P. Nair (COO): Overseeing operations and ensuring efficiency across manufacturing processes.

Dr. Anil Gupta (Board Director): Providing expertise in technology and strategic decision-making.

Shareholding Pattern (as of September 2024):

Promoter and Promoter Group: 60.15%

Foreign Institutional Investors (FIIs): 12.00%

Domestic Institutional Investors (DIIs): 15.50%

Public Shareholding: 12.35%

Strengths:

Market Position: Established reputation in the EMS sector, with a strong focus on high-value markets.

Diverse Client Base: Serves various industries, reducing dependence on any single sector.

Robust R&D Capabilities: Continuous innovation drives product development and keeps the company competitive.

Quality Assurance: Strong emphasis on quality and reliability enhances customer trust and loyalty.

Efficient Manufacturing: Implementation of lean manufacturing practices leads to cost-effective production.

Weaknesses:

Dependence on Key Clients: Reliance on a few major clients can pose risks if contracts are lost or reduced.

Market Volatility: Fluctuations in demand in key sectors can impact revenue stability.

Limited Global Presence: While expanding, Kaynes still relies heavily on the domestic market, which may limit growth potential.

Supply Chain Risks: Global supply chain disruptions can affect manufacturing and delivery timelines.

Opportunities:

Growing EMS Market: Increasing demand for electronic components and manufacturing services presents significant growth opportunities.

International Expansion: Exploring new markets can diversify revenue streams and reduce risks associated with domestic dependence.

Emerging Technologies: Opportunities in sectors like IoT, AI, and automation could lead to new product development and revenue growth.

Threats:

Intense Competition: The EMS industry is highly competitive, with numerous players vying for market share.

Economic Downturns: Economic slowdowns can negatively impact demand for electronic products and services.

Technological Advancements: Rapid technological changes require continuous adaptation and investment in R&D.

Disc- Invested 7% of my portfolio

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Good study, but the market cap and order book is not justifiable according to me, also forward PE will be so high for this as the EPS growth is just 25% with a not a very healthy ROCE and ROE numbers.

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Smart meters and semiconductor business is poised to grow exponentially in India and globally. Kaynes Technology has established itself as the preferred and emerging trusted player.

Tye new Hyderabad plant has started manufacturing smart meters and the expected order book from smart meters alone is expected to be 6000 Crores by FY 2027. The company aspires to become the largest smart meter manufacturer in India. A total of 110 million smart meters have been awarded, with another 110 million yet to be awarded. Currently, smart meters contribute approximately 10% to total sales, expected to rise to 15% as production ramps up.

The latest order book is above 5000 crores.

As far as the PE goes, it’s always going to be high because the market is expecting Kaynes to generate profits at a much higher rate than its peers. If you wait for its PE to lose steam, you may miss the bus.

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Stellar Q2 results. The management promised net profits of 60 crores with 15% OPM and surpassed it handsomely. Revenue guidance for FY 25 is maintained at 3000 crores with 15% margins.

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Kaynes Technology’s Strategic Acquisition of Iskraemeco India: Expanding Leadership in India’s Smart Meter Market

Kaynes Technology India Limited has acquired Iskraemeco India Private Limited with the aim of securing orders in the smart meter market and aspiring to become the largest smart meter manufacturer in India. Iskraemeco’s existing contracts include significant orders from the Power Grid Corporation of India Limited (PGCIL) and the West Bengal government.

The smart metering market presents significant opportunities, with 110 million smart meters already awarded and an additional 110 million yet to be awarded. Kaynes Technology’s management anticipates capturing a share of orders from various Advanced Metering Infrastructure Service Providers (AMISPs) and sees substantial potential in both domestic and international markets for smart metering and other power distribution products.

This acquisition enhances Kaynes Technology’s manufacturing scale and technological expertise in the smart meter sector, enabling the company to address a variety of metering solutions, including gas and water meters. Leveraging its existing capabilities, Kaynes is positioned to meet the growing demand in the smart metering industry.

A new factory in Hyderabad is ramping up production with a target of completing 3.5 million meters in 1.5 to 2 years. The management expects a steady inflow of orders from various AMISPs, supporting increased production capacity. Currently, smart meters contribute approximately 10% to total sales, a figure expected to rise to 15% as production expands. The acquisition is projected to be margin accretive, with no adverse impact on the company’s EBITDA guidance of 15%.

Major competitors in the smart meter space include Genus Power and other established players. Kaynes Technology aims to collaborate with AMISPs rather than compete directly, thereby minimizing conflicts of interest. The company maintains its revenue guidance of ₹3,000 crores for FY’25, with the potential for incremental revenue from the acquisition. Iskraemeco’s past revenues were fully supplied by Kaynes Technology, positioning the latter for stronger financial performance following the acquisition.

The working capital cycle is expected to remain within 90 days, with payment terms structured to minimize cash flow impact. Installation responsibilities for smart meters are shared with AMISPs, allowing timely revenue recognition upon delivery.

Looking forward, the management expresses confidence in the government’s commitment to rapidly deploying smart meters, projecting a faster rollout than in previous years. The integration of Iskraemeco is viewed positively, enhancing Kaynes Technology’s competitive positioning in the market.

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Semiconductor facility to start operating by Q4FY26

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