Kaynes Technology India

For the financial year 2023-24 (FY24), Kaynes Technology India reported a robust financial performance. The company’s revenue from operations increased by 60.3 per cent. This significant growth underscores the company’s ability to expand its revenue base across different sectors 

Kaynes Technology India Limited (KTIL) is a leading end-to-end electronics manufacturing company specialising in Internet of Things (IoT) solutions. With expertise in electronics system design and manufacturing services, KTIL serves various industries including automotive, aerospace, defence, healthcare and IoT. It provides services from conceptual design to lifecycle support, catering to the diverse needs of clients across different sectors, focused on the low-volume, high-value segment.

End Applications Across Sectors
▪ Automotive: PCBA for LED headlamps, tail lamps, switches and body control units (BCUs).
▪ Industrial and Electric Vehicles: Engine control panels, street light controllers, BLE modules and precision strain gauges.
▪ Aerospace and Defence: HH sonar systems, missioncritical electronics and cable assemblies. KTIL has been a valuable industry partner for the soft landing of Chandrayaan-3 and the launch of Aditya-L1 missions.
▪ Medical: Endoscopy carts, X-ray machines and analyser controller units.
▪ Railways: UM71 receivers, ETCS cubicles and SDTC components.
▪ IoT, IT and Consumer Electronics: Bar code scanners, RFID gateways and industrial tablets.

Here’s a breakdown of the revenue contribution by end application sector:
▪ Automotive: 29 per cent
▪ Industrial and EV: 48 per cent
▪ Aerospace and Strategic Electronics: 3 per cent
▪ Medical: 3 per cent n Railways: 11 per cent
▪ IoT, IT, Consumer and Others: 7 per cent.

Service Offerings

KTIL provides a wide range of services that cover every stage of the electronic product development and manufacturing process. Here’s a simplified explanation:

Design Services: It helps clients design electronic products, ensuring they are easy to manufacture and meet regulatory standards.
▪ Prototype Manufacturing: The company creates initial versions of products to test and validate designs before full production.
▪ Manufacturing Services: The company offers various manufacturing services, including assembling PCBs (printed circuit boards), building complete electronic systems (box-building), and         producing products for other companies (OEM manufacturing).
▪ Industrialisation Services: It prepares products for large-scale production, optimising the manufacturing process to make it efficient and cost-effective.
▪ Product Maintenance and End-of-Life Services: After delivering the products, it provides maintenance services to ensure the products continue to work well. It also handles the responsible disposal or recycling of products at the end of their lifecycle.

How It Works
▪ Concept to Design: KTIL helps turn ideas into detailed designs.
▪ Prototyping: It quickly create test versions of the product.
▪ Manufacturing: It assembles and builds electronic products.
▪ Industrialisation: It sets up processes for large-scale production.
▪ Post-Delivery Support: It maintains the products and handles their disposal when they are no longer needed.

Business Segments

OEM – Turnkey – Box Build - This segment provides complete assembly services, encompassing the entire process from PCB manufacturing to final product assembly within an enclosure. It focuses on ‘build to print’ or ‘build to specifications’ for complex products across various industries. This segment contributes 42 per cent of the total revenue.

OEM – Turnkey – PCBA - It offers turnkey solutions for printed circuit board assemblies (PCBAs), including manufacturing, component sourcing, assembly and testing. This segment emphasises on high-quality production and compliance with industry standards. It contributes 55 per cent to the total revenue.

ODM (Original Design Manufacturer) - It provides design and manufacturing services based on client specifications, enabling customers to leverage the company’s expertise in electronics to create innovative products. The segment contributes 1 per cent to the total revenue.

IoT, IT, Consumer and Others - It develops solutions for IoT applications, IT products and consumer electronics, addressing the growing demand for smart and connected devices. The segment contributes 2 per cent to the total revenue.

Financials
FY24 - For the financial year 2023-24 (FY24), Kaynes Technology India reported a robust financial performance. The company’s revenue from operations increased by 60.3 per cent to ₹1,804.6 crore, up from ₹1,126.1 crore in FY23. This significant growth underscores the company’s ability to expand its revenue base across different sectors. The net profit after tax (PAT) surged 92.5 per cent to ₹183.3 crore, reflecting improved operational efficiency and effective cost management. The operating profit margin stood at 14.2 per cent, while the net profit margin grew to 10.2 per cent, indicating enhanced profitability.

Q1FY25 - In the first quarter of FY25, Kaynes Technology India’s revenue from operations saw a substantial year-on-year increase of 69.59 per cent, reaching ₹503.98 crore compared to ₹297.18 crore in the same period last year. Its profit after tax (PAT) more than doubled, surging 106 per cent year-on-year to ₹50.77 crore, reflecting significant improvements in profitability.

The earnings before interest, taxes, depreciation and amortisation (EBITDA) also experienced strong growth, increasing by 66 per cent to ₹66.9 crore. However, the EBITDA margin slightly contracted by 27 basis points, settling at 13.3 per cent. Despite this, the PAT margin expanded by 178 basis points to 10.1 per cent, indicating enhanced operational efficiency

The company’s order book stood at ₹5,038.6 crore as of June 30, 2024, marking a 22 per cent sequential increase from the previous quarter. This growth was fuelled by robust demand across sectors such as industrial, electric vehicles, aerospace, outer space and strategic electronics. Meanwhile, the net working capital cycle remained stable at 121 days, consistent with the previous year. Although the net debt increased, the company maintained a healthy net debt-to-equity ratio of 0.2 times.

Order Book

KTIL has a strong increase in its order book. The company’s order book stands at ₹5,038.6 crore. The average order value has also increased. Approximately 60-70 per cent of the order book will get executed within the next 12 months.

Growth Triggers
▪ Export Growth: Targeting export orders to rise to 20-25 per cent by FY26, enhancing global revenue streams.
▪ Revenue Ambition: Aiming for USD 1 billion in revenue by FY28, reflecting strong growth potential.
▪ EBITDA Focus: Setting a target of 15 per cent EBITDA margin by FY25, driving profitability through operational efficiency.
▪ New Business Ventures: Expanding into OSAT and PCB sectors which are expected to significantly boost revenue with higher PAT margins.
▪ Niche Market Focus: Concentrating on high-margin, protected segments to ensure sustainable growth.
▪ Sector Expansion: Anticipating growth in industrial electronics with advancements in smart meters and packaging technologies.
▪ Medical Equipment: Projected significant growth due to a new large customer base in this segment.
▪ EV Market Opportunities: Leveraging the surge in electric vehicles by supplying key components, positioning KTIL as a vital player in the growing EV ecosystem.
▪ Self-Reliance and Import Substitution: Supporting domestic production, reducing import reliance, and tapping into government initiatives.
▪ Strategic Investments: Committing ₹3,740 crore in an OSAT facility in Hyderabad with substantial government subsidies, and ₹3,750 crore in Karnataka to enhance infrastructure and production capacity.

Valuation
Kaynes Technology India demonstrates strong capital efficiency with a ROCE of 18.8 per cent and ROE of 17.4 per cent. It has a high EV and EBITDA multiple of 82.5 times and a stock PE of 146, reflecting robust market confidence. The PEG ratio is approximately 3.91, suggesting the stock may be overvalued compared to the typical PEG ratios. The company maintains a low debt-to-equity ratio of 0.11.

Conclusion
Kaynes Technology India exhibits strong financial performance, supported by its diverse applications across industries, which provide demand security. The company benefits from an increasing order book and rising order values, along with long-standing relationships with its clients. While the stock is trading at higher valuations, this is justified by strong growth prospects. Therefore, we recommend BUY.