Kaynes Technology India Limited - The EMS giant in making

Stock Opportunities Not-so-Hidden Gems
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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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Thank you for starting this topic…Kaynes has very promising future. If you deep dive into their business model then only we can understand why it’s trading at such a high P/E. Key takeaways from their recent earning call will help to understand high P/e ratio.

Concerns Raised and Responses in Kaynes Technology India Q2 FY25 Earnings Call Q&A

1. Revenue Growth and Segment Contributions

Question: Breakdown of revenue growth by key segments like EV, smart meters, and industrial businesses.
Response:

  • Revenue growth in H1 FY25 was led by smart meters, EVs, and industrial verticals.
  • Smart meters: Orders from Iskraemeco will contribute significantly in the second half of FY25 and beyond.
  • Industrial growth was supported by increased traction in instrumentation, power electronics, and EV-related businesses.
  • The management confirmed steady contributions from aerospace and railways in FY26, alongside new customer onboarding.

2. Margins

Question: Trends in gross and EBITDA margins and their sustainability.
Response:

  • Gross margins improved due to a favorable mix from high-yield segments like industrial, IT, and aerospace.
  • EBITDA margins are expected to cross 15% in FY25, driven by better operational efficiencies and economies of scale.
  • Smart meter projects are likely to maintain margins at company levels, and the management emphasized long-term profitability from volume-driven sectors.

3. Future Expansion Plans

Question: Updates on new facilities and their contribution to future growth.
Response:

  • The OSAT facility in Sanand, Gujarat, and the HDI PCB factory in Chennai are expected to generate revenue from Q4 FY26.
  • The Telangana smart meter factory is operational, and Phase 2 is under construction.
  • Investments are strategically aligned with the company’s growth objectives to become a fully integrated electronics provider.

4. Working Capital and Cash Flow Questions

Question: High inventory levels and receivables impacting cash flow.
Response:

  • Inventory levels were intentionally high to support expected strong execution in H2 FY25.
  • The management expects net working capital days to decrease to ~75 days by year-end, improving cash flows.
  • Positive operating cash flow is projected for FY25 despite aggressive growth and expansion.

5. Addressing EV Segment Slowdown

Question: Impact of slower EV adoption in India on Kaynes’ growth.
Response:

  • The EV segment growth is diversified across two-wheelers, four-wheelers, components, and charging infrastructure, reducing dependency on any single vertical.
  • While growth in four-wheelers is cautious, two-wheelers and EV components remain steady contributors.

6. Smart Meter Adoption and Execution Risks

Question: Delays and resistance to smart meter installation in some states.
Response:

  • Management acknowledged initial implementation challenges but emphasized long-term government commitment to the program.
  • Nearly 10 million meters have already been installed, and the company expects a 15-20% share of the total market.

7. Aerospace and Defense Contributions

Question: When will large aerospace projects start contributing to revenue?
Response:

  • Serial production for a major U.S. aerospace OEM will begin in Q4 FY25, with significant revenue expected in FY26.
  • Strategic electronics and ISRO collaborations are likely to drive additional growth in the defense sector.

8. Sustainability of High Growth Rates

Question: Will the company sustain high growth over the long term?
Response:

  • Management cited import substitution, expanding domestic opportunities, and export growth as key drivers.
  • Revenue is projected to triple in the next few years, with a target of USD 1 billion by FY28.

9. Operating Cash Flow Amid Rapid Growth

Question: Can Kaynes maintain positive cash flow while scaling operations?
Response:

  • Management expects INR 200 crore in operating cash flow for FY25, supported by inventory optimization and better receivable cycles.
  • They plan to rely on internal accruals and operational efficiency to fund growth without significantly increasing debt.

Disc: invested 25% of portfolio in kaynes with long term view.

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This company is growing in every aspect. They are growing in conventional business as well as new but related business through Acquiring new companies. Like optoelectronic, smart meter, railway signalling etc. Very reliable management especially Sampath ji, he always beat his guidance…
Strength 1 very Good management 2 high margin business with well diversification 3 High growth through capacity expansion and acquisitions.

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QIP announcement and stock down 20% in two sessions

1600 Cr Fund Raise

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What can be a good valuation to enter?
Current P/E - 106
Current P/E - 10 (around)
3 Year Sales CAGR - 60%
3 Years EPS CAGR - 165%

Points to Consider

  • Public holding is increased from 9% to 12%
  • CFO to EBITA - 22% (Not worried a lot about this for now)

I do not have exposure to this sector, in this fall I want to get into this sector, checking all the companies. Considering the P/E of 60 (max) to enter, with current earnings I still want 25% more fall around 3K to enter, Is that fair price or I’ll overpay for the business?

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Kaynes Technologies Q3FY25 Call - 28th January 2025

  • Revenue guidance of ₹2,700-2,800 crores for FY25E with 15% margin guidance vs ₹3,000 crores earlier. FY26E guidance is ~₹4,500 crores
  • Plans to raise ₹1,600 crores. Planned QIP to fund inorganic growth and tap into new geographies
  • Q3FY25 was impacted as ₹100 crores order was not executed
  • OSAT factory in Sanad and PCB factory in Tamil Nadu is being constructed; customers being onboarded for OSAT
  • Semiconductor capex of ₹3,300 crores of which 70% comes from central government. Normal capex of ₹200-300 crores annually. Smart meter factory is being constructed in Hyderabad
  • Huge order inflow from sectors like Industrials, Aerospace, IT, etc.
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Reduced guidance is punishment for the stock

Despite decent Q3 numbers, the company revised its FY25 revenue guidance downward to ₹2,800 crore from the earlier estimate of ₹3,000 crore. This adjustment was attributed to delays in executing industrial segment orders worth ₹100 crore during the December quarter, which are now expected to be completed in the March quarter.

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@firefueled I really don’t think of giving this high valuation right now. There is noticeable slowdown in economy and I do not expect huge capex by gov in this budget, there would be more emphasis on freebees! I would buy it around 50-60 times earnings or 6 times price to sales (that too is an extreme stretch for me), currently trading at 12 times sales.

Comparing it with dixon there are some differences between both! Even after huge runup it is 2.64 times sales not 12 times and I expect we are at the peak margins currently for Kaynes, so in future it would be really difficult to ramp up the bottomline for them.

Just my two cents thinking!! Dics: Not Invested but Interested in the Sector

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not a like-to-like comparison, business models are slightly different, Dixon operates under high volume low mix while Kaynes is low volume high mix with signifcantly better EBIT margins of 15-16% compared to 3-4% for Dixon, so price-to-sales valuation may suit for low margin business like Dixon, for high margin business like Kaynes, i would look at P/E. Having said that, can’t overlook the significant premium that kaynes is currently trading even after today’s slump.
Disc: Hold Dixon

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@Dhruv_Doshi Jairam Sampat, whole time director and CFO of Kaynes Tech assures clocking 1000+ cr revenue in Q4 with increased EBIDTA margins without any additional capex or acquisitions.

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Kaynes | Management Interview

Q3FY25 impacted by Rs.100 cr order which was not executed!

Revenue Guidance
a. FY25 at Rs.2800cr vs Rs.3000cr earlier
b. FY26 at Rs.4500cr

Planned QIP to fund inorganic growth & tap into new geographies

Watch here - https://youtu.be/LIwAXXuV9qI

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Leave aside 3000 cr. I think 2800 cr is stretched, considering three quarters are done and they’re sitting at a 9M revenue of 1737 cr. They need to execute almost 1000 cr worth of orders to reach 2800 cr. I don’t know if the management is getting carried away with the rally.

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Atomberg products are popular and carry 5 star ratings from its customers in Amazon for its innovative kitchen & Home appliance products with BLDC Motors (Brushless direct current) which are highly energy efficient, noiseless.

. Atomberg vision is to creating every household appliance with a blend of mindful design, energy efficiency, and advanced smart technology

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Analysis of Kaynes Technology India Ltd.: Financial Health, Growth Prospects & Potential Malpractices

Based on the financial statements and investor presentation, I have analyzed the company’s balance sheet, cash flow, profitability, growth strategies, and any potential malpractices. (Source: Chat GPT)

1. Financial Health Analysis

Balance Sheet Strength

  • Revenue Growth:
    • 9M FY25 revenue: ₹17,373 Mn, up 49% YoY.
    • Q3 FY25 revenue: ₹6,612 Mn, up 30% YoY.
    • Strong order book of ₹60,471 Mn (grew from ₹37,890 Mn YoY).
  • Profitability & Margins:
    • EBITDA: ₹2,431 Mn in 9M FY25 (53% YoY growth).
    • EBITDA margin improved to 14% (+40 bps YoY).
    • PAT: ₹1,774 Mn, up 74% YoY.
    • PAT margin: 10.2% (grew from 8.9% in 9M FY24).
    • ROCE: 17.7% (vs. 16.8% in 9M FY24).
    • ROE: 17.3% (slightly lower than 18.6% in 9M FY24).
  • Debt & Liquidity:
    • Net Debt: ₹5,996 Mn (up from ₹2,449 Mn in Dec 2023).
    • Debt-to-equity ratio at 0.2, indicating manageable leverage.
    • Cash balance: ₹15,256 Mn, ensuring liquidity for expansion.
  • Concerns:
    • Debt has increased significantly, but manageable.
    • EBITDA margins remain moderate (14.2%), indicating potential cost pressures.
    • Employee expenses surged 133% YoY, impacting net profits.

2. Cash Flow Analysis

Operating Cash Flow:

  • Operating profit before working capital changes: ₹2,717 Mn.
  • Cash flow from operations (CFO): ₹701 Mn (vs. -₹416 Mn in 9M FY24).
  • Positive turnaround in operating cash flow is a healthy sign.

Investing Activities:

  • High capex investments: ₹15,052 Mn in FY24, used for capacity expansion.
  • Acquisition of Sensonic GmbH (Railways sector) in Austria.

Financing Activities:

  • Raised ₹14,286 Mn through financing (likely debt/equity issuance).
  • Significant cash inflow to fund expansion.

Concerns:

  • Heavy capital expenditure (₹15,052 Mn) could put pressure on future cash flows.
  • Working capital days at 107 (down from 117), but still relatively high.
  • High trade receivables (₹3,556 Mn), which needs close monitoring.

3. Growth Prospects

Key Business Segments & Performance

  1. Automotive & EV Electronics:
  • Revenue mix: 31% (vs. 28% in 9M FY24).
  • Growth driven by EV and smart automotive solutions.
  • Focus on battery control units, LED headlamps, and steering modules.
  1. Aerospace, Outerspace & Defense:
  • Revenue share increased to 11% from 7%.
  • Major supplier for ISRO and defense projects (Chandrayaan-3 & Aditya-L1 missions).
  • Mission-critical electronics for satellite & defense systems.
  1. Railways & Industrial:
  • Revenue mix: 44% (slightly lower YoY).
  • Acquired Sensonic GmbH (Railways electronics business) in Austria.
  • Focus on automation & industrial IoT solutions.
  1. Medical & IoT/Consumer Electronics:
  • IoT-driven smart meters, biometric devices, and industrial sensors.
  • ODM business growing steadily, indicating expansion in product innovation.

4. Potential Malpractices or Red Flags

:mag: Key Observations:

  1. Surge in Employee Costs:
  • Employee expenses grew 133% YoY, which is unusual.
  • Need clarity on whether it is due to new hiring or higher compensation.
  1. High Capex Spending:
  • ₹15,052 Mn spent on investments, but unclear ROI on expansion projects.
  • Monitoring required to ensure capex translates into higher revenues.
  1. Rising Debt & Interest Costs:
  • Debt increased to ₹5,996 Mn from ₹2,449 Mn, a sharp rise.
  • Finance costs up 82% YoY, suggesting increased borrowing costs.
  1. Inconsistent Working Capital Management:
  • Receivables (₹3,556 Mn) grew significantly, potentially impacting cash flow.
  • Inventory days increased from 68 to 81, indicating higher stock holding.
  1. Acquisition of Sensonic GmbH (Austria):
  • No clear disclosure of how much was spent on the acquisition.
  • Need further transparency on expected synergies and profitability.

5. New Initiatives to Drive Growth

:small_blue_diamond: Global Expansion & Acquisitions:

  • Expanded to the USA & Southeast Asia for direct manufacturing.
  • Acquisition of Sensonic GmbH (Austria) to boost railway electronics business.

:small_blue_diamond: Capacity Expansion in India:

  • New Manufacturing Facilities in:
    • Chamarajanagar (~350K sq. ft.)
    • Hyderabad (70K sq. ft.).
  • Adding SMT lines, plastic molding, and clean room facilities for scaling production.

:small_blue_diamond: Electronics & Semiconductor Push:

  • Entry into OSAT (Outsourced Semiconductor Assembly & Testing).
  • Building High-Density Interconnect (HDI) PCB facilities for semiconductor packaging.

:small_blue_diamond: Product Innovation & IoT Solutions:

  • BLDC Motor Controllers, GaN chargers, Smart meters.
  • IoT-based Asset Monitoring Platforms (industrial applications).

:small_blue_diamond: Marquee Customer Wins:

  • Long-term relationships with top 10 customers (average 9 years).
  • Supplies electronics for ISRO, Indian Railways, and global automotive brands.

6. Conclusion: Should You Invest?

:white_check_mark: Positives:

  • Strong revenue growth (49% YoY) with robust order book of ₹60,471 Mn.
  • Diversified revenue streams across automotive, aerospace, defense, and industrial sectors.
  • Debt-to-equity remains low (0.2), providing financial flexibility.
  • Expanding global presence with acquisitions and new plants.
  • Entry into high-growth areas like OSAT, IoT, and HDI PCBs.

:warning: Concerns:

  • Surging employee expenses (+133% YoY) need justification.
  • High capex spending (₹15,052 Mn) with uncertain ROI.
  • Rising debt & finance costs (82% increase YoY).
  • Receivables & inventory buildup needs better working capital control.
  • Acquisition of Sensonic GmbH lacks detailed financial disclosure.

:mag_right: Verdict:
:chart_with_upwards_trend: Kaynes Technology is in a high-growth phase with strong demand, but investors should monitor capex efficiency, rising debt, and profitability sustainability. A long-term investment could be beneficial if the company successfully executes its expansion plans.

Disclaimer: Not a buy/sell call, fully invested.

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I was invested in Kaynes story till last 2 weeks back. I combine lot of technical understanding of price action to drive what market thinks about a stock. There has been a clear breakdown after Q3 results falling short of expectations, add to that market template, over valuation. To me all of a sudden in a perfectly cruising growth story, there is now cloud of uncertainity on management execution. About a month before results, management was on one of the business channel and re-affirmed 3000 cr topline for FY25 just to fall short on Q3 results and scaling down the guidance. Spokeperson / CFO apparently was not full aware of ground working, if he did, he thought it will fly with the market. Technically in this market a stock correcting about 47% will have to climb 87% to reach its new high, before the journey continues. For this kind of market where companies are beaten out of shape inspite of good results, it seems to be a tall ask this year atleast for Kaynes. So exited and watching from sidelines for now.

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