Kaynes Technology India Ltd : Avoid

Kaynes Technology India Ltd : Avoid
  • Date

    10 Nov 2022 - 14 Nov 2022

  • Price Range

    ₹559 - ₹587

  • Minimum Order Quantity

    25

  • (D) RHP

    View

Kaynes Technologies is a leading end-to-end and IoT solutions-enabled integrated electronic manufacturing company operating in the spectrum of electronics system design and manufacturing (ESDM). The provides conceptual design, process engineering, integrated manufacturing and lifecycle support for major players in the automotive, industrial , railways, aerospace and defence, outerspace, nuclear, medical and other segments. The company’s operations are classified under the four business verticals namely “OEM-Box Build”, “OEM-PCBAs”, ODM services in smart metering technology, smart street lighting, and BLDC technology among others. It also offers conceptual design and product engineering services in industrial and consumer segments. The company currently has eight located manufacturing facilities in the states of Karnataka, Haryana, Himachal Pradesh, Tamil Nadu, and Uttarakhand. As of June 2022, the company has the company has served 229 customers in 21 countries. The company sources its materials from 871 vendors across various regions including North America, Europe, and Singapore as well locally within the country. The company is one of the first companies in India to offer design-led electronics manufacturing to original equipment manufacturers. The company’s current order book value stands at INR 2200cr with an average customer relationship duration of 5-8 years..
Objects of the issue:
The IPO proceeds of the fresh issue will be used towards the following purposes:
  • Repayment/ prepayment, in full or part, of certain borrowings availed by the Company.
  • Funding capital expenditure towards expansion of the existing manufacturing facility at Mysore, Karnataka, and near the existing manufacturing facility at Manesar, Haryana.
  • Investment in the wholly owned Subsidiary, Kaynes Electronics Manufacturing Private Limited, for setting up a new facility at Chamarajanagar, Karnataka.
  • Funding working capital requirements of the Company.
  • General Corporate purposes.
 
Investment Rationale:

Significant Emphasis on Research and Development

The company invests significantly in its research and development to be able to address its customer’s diverse needs and enhance the existing products. The company targets to introduce new and innovative products in the market with new technologies and cost optimization through value analysis and value engineering. It has established a dedicated research and development facility located within its facility at Mysuru, Karnataka. The research and development team also closes works with the customers to develop products according to their specific needs. As of 30th June 2022 the R&D team is comprised of 19 employees.

Advanced Infrastructure Systems and Processes

The company is focused on creating robust infrastructure to adhere to global standards. The company has obtained certifications for all the business verticals it operates in which helps it to service its customers with stringent quality specifications and also assists in new customer acquisitions. It also undertakes repairs and provides rehabilitation of electronic cards in railways, aerospace, defence and industrial vehicles at its servicing and maintenance unit in Navi Mumbai.
Valuation and Outlook:
The global ESDM market scenario is changing rapidly with more and more OEMs are realising the capabilities of ESDM companies with the global ESDM market estimated to reach $1000 billion by FY25 giving Kaynes Technologies to significantly expand further. The company is the largest manufacturer of LED lamp electronics and produce approx 6000 different products every month. The company witnessed 3.7 times rise in its order book value in the past 2 years with PAT margins also growing from 2.3% in FY21 to 5.9% in FY22. It has also received PLI approvals in the A/C and Telecom vertical. However the loss of any top 5 customers of the company and increasing competition in the electronics market along with consistent negative cash flows continue to be key risks. On the upper end of the price band, the issued is valued at a P/E of 65.2x based on FY22 earnings which is on the steeper side and we initiate “AVOID” recommendation to the IPO.