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Company Description

Kaynes Technology Limited (“Kaynes”) is a leading end-to-end and IoT solutions enabled integrated electronics manufacturing player, having capabilities across the entire spectrum of electronics system design and manufacturing (“ESDM”) services. They have experience in providing conceptual design, process engineering, integrated manufacturing and life-cycle support for major players in the automotive, industrial, aerospace and defence, outer-space, nuclear, medical, railways, Internet of Things (“IoT”), Information Technology (“IT”) and other segments.

Kaynes is among the first companies in India to offer design-led electronics manufacturing to original equipment manufacturers (“OEMs”) using their mature embedded design capabilities. Over the years, it has gained technological expertise and evolved from an electronics manufacturing services provider into a design-led manufacturer providing value-add electronics manufacturing services and original design manufacturing (“ODM”) solutions in the fields of smart devices, IoT solutions, brushless drive technology, and Gallium Nitride technology. It continue to place emphasis on integrating their services to serve as an end-to-end ESDM provider.

The total domestic addressable ESDM market was Rs. 2,654bn in FY21, which is expected to grow by 30.3% CAGR between FY21-26 to reach a size of Rs. 9,963bn in FY26. The contribution from the domestic ESDM companies is expected to improve to 41.1% by FY26, compared to around 40% FY21.

As per the Electronic Industries Association of India, there are nearly 700 companies offering services related to design & manufacturing of electronics products. While most of the companies offer pure play manufacturing /assembly services (also known as EMS companies), there are specialized ESDM companies such as Kaynes which offer services across the value chain including conceptual product design, components, products and solutions. EMS companies offer ‘Build-toPrint’ of either printed circuit board assembly (PCBA) only or complete product, whereas ESDM companies leverage their conceptual ‘Embedded Design’ capabilities to add value in electronics manufacturing.

Valuation:

Kaynes Technology is a fast-growing ESDM services company with a diversified portfolio as well as business model having applications across Automotive, Industrials, Aerospace & Defence, Medical Devices, Railways, Internet-of-Things etc. Demand across the underlying sectors is likely to remain robust and Kaynes Technology is currently at an influx of this demand with support of favourable policy initiatives like PLI, Increasing demand for consumer and industrial electronics, changes in the global manufacturing environment and a ~30% expected growth in Indian ESDM market

With an impressive 3-year CAGR Revenue/PAT growth of 38%/111% respectively coupled with industry leading operating margins and robust order book of Rs.22,663 Mn as of 30th June, 2022. Kaynes will continue to move up the value chain of EMS/ESDM sector. With the fresh issue of Rs.5,300 Mn the company plans to triple its existing capacity in coming years, reduce its debt and fund working capital requirements which further multiplies its growth prospects.

On the valuation front at the upper band of the IPO price Kaynes is demanding PE of 81.9x its TTM earnings attributable to post issue equity demanding a market cap of Rs. 34,129 million which we believe is fairly priced considering its decent historical growth, strong revenue visibility and growing demand of automation across underlying industries. We recommend ‘SUBSCRIBE for long term’ rating to this IPO.

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