IGI Logo

Diversifying into high-growth segments

Kaynes Technologies (KAYNES) inaugurated its electronics manufacturing facility in Hyderabad for the production of smart meters. During the event, the company also announced three new partnerships aimed at driving growth in both existing and new market segments.

* The Hyderabad facility will initially manufacture smart meters, projected to generate an annual revenue of INR8b from FY26. With ample space available, the facility will subsequently expand into the manufacturing of other segments, such as aerospace.

* During the event, Kaynes formed partnerships with Brightgrid Technologies LLP (partner for smart meters), Lightspeed Photonics (for semiconductors), and VLSI Society of India (to develop the skilled workforce necessary for semiconductor growth in India).

* The diversification of the product portfolio into high-growth segments, along with strategic partnerships, positions KAYNES favorably within India's decadelong growth trajectory in the Electronics Manufacturing Services (EMS) sector. We reiterate our BUY rating on the stock with a TP of INR6,000 (premised on 53x Sep’26E EPS).

State-of-the-art facility for smart meters with scope for further expansion

* KAYNES already manufactures smart meters in India for clients such as Iskraemeco and L&T from the Mysore facility.

* With the expanding scale of the segment and huge demand in the near term, the company has setup a large facility dedicated to manufacturing smart metering in Hyderabad.

* India requires ~250m smart meters, of which only 10m meters have been installed to date, leaving 240m meters yet to be deployed. This presents a huge opportunity for manufacturers.

* There are only a few large manufacturers of smart meters in India, which are Iskraemeco, L&T, Schneider, Genus Power, and Kaynes.

* This new facility can produce 3,000 meters per day (one product to be made in every nine seconds) in one assembly line. The company will install two more lines going forward, taking the total capacity to 4m meters p.a.

* This is a fully automated facility with SMT lines, injection molding, and assembly units, having minimal human intervention. Further, KAYNES has used robots for transporting raw materials to the SMT line and packing the final products.

* The facility is just a small part of the large 46-acre land parcel KAYNES owns here, which will incorporate further expansion going forward.

* The facility inauguration event was also attended by the Speaker of the Telangana Legislative Assembly Gaddam Prasad Kumar and the state's IT Minister D Sridhar Babu, as well as MLA M Ranga Reddy.

Smart metering to be the near-term growth catalyst

* KAYNES expects ~INR8b of annual revenue from smart meters from FY26 (i.e., ~17% of FY26E consolidated revenue), while the company expects to generate revenue of ~INR4b in FY25.

* The company has strong revenue visibility in the near term (next 2-4 years) as the demand for smart meters has accelerated recently.

* Margins from this segment are better than the current margin profile of KAYNES, thus expecting to drive up the overall margins going ahead.

* KAYNES already has 3.5m meters of orders in hand from Gujarat. The orders are at advanced stages from a few more state governments.

* The asset turn of this business will be 6-8x (mostly near 8x as it is a productfocused business).

* Two of the best global companies (also technology providers) are customers of KAYNES and it expects a healthy market share (~15%).

New MOUs signed for further growth

* KAYNES, during the event, announced three new tie-ups to further upskill its technology prowess and drive future growth.

* The company added Brightgrid Technologies LLP as its client for smart meters. Brightgrid is a strategic player in India’s smart metering sector focused on manufacturing electricity distribution and control apparatus. Brightgrid holds substantial orders for smart meters from various states and electricity boards across India.

* Another tie-up is with Lightspeed Photonics, a Singapore-based fabless system development company focused on combining optical interconnects with processors to build a modular compute + interconnect heterogeneous Systemin-Package (SiP), LightSiP™. These are used in Data Centers, IAAS, Telecom, and Edge computing. Their core capabilities include electronic photonic integration, system architecture design, heterogeneous integration, advanced packaging and hardware, and application development.

* This tie up will aid KAYNES in strengthening its footprint in the semiconductor sector.

* The last partnership announced here was more of ensuring a constant supply of skilled manpower for its semiconductor business. KAYNES joined hands with VLSI Society of India, an organization focused on making India a world-class semiconductor product nation by developing talent and skilling manpower. VLSI aims to generate a massive pool of PHDs, engineers, and technicians in the next five years.

Valuation and View

* KAYNES is a prominent end-to-end and IoT-enabled integrated electronics manufacturer, with strong order book growth (85% CAGR over FY20-24) and a higher share of Box Build (~42% in FY24) and PCBA (~55%).

* We estimate a revenue/EBITDA/Adj. PAT CAGR of 56%/62%/67% over FY24- FY27, driven by a healthy order book growth trajectory and a better margin profile (increasing mix of high-value orders).

* We reiterate our BUY rating on the stock with a TP of INR6,000 (premised on 53x Sep’26E EPS

For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html

SEBI Registration number is INH000000412