Kaynes Technology India: Beyond the obvious

8 Sep 2023 , 11:43 AM

Recommendation: Buy; Target price: Rs 2595

 

Kaynes Technology India (Kaynes) has emerged as an invincible player in the Indian ESDM market, with relentless focus on building differentiated and industry-first capabilities and offering integrated solutions across a diverse customer base. Foray in the semicon value chain (bare PCBs and OSAT) with global technology partners, will place Kaynes in a different league — beyond the current structural wave in the domestic ESDM market. With 65% PAT Cagr in FY23-26 and RoE improving to 26%, recent valuation re-rating is justified. The stock trades at PEG of 0.4x. Analysts of IIFL Capital Services initiate coverage on Kaynes with BUY and 12-month TP of Rs2,595 (40x PER), implying 33% upside. 

At the fore of Indian ESDM story: Kaynes operates in the Rs1,469bn (US$ 18bn) Indian Electronics System Design and Manufacturing (ESDM) market, which is poised to grow at 32% Cagr over FY22-27; increasing India’s share from <2% to 7%. Key drivers include: changing global landscape of electronic design & manufacturing, strong domestic market with growing electronics penetration, favourable policy interventions & incentives, cost competitiveness, and China+1 Strategy. Its unique positioning in low-volume-high-mix market with end-to-end design & IoT capabilities will drive >50% revenue Cagr in FY23-26. 

Targets emerging segments to deliver profitable growth: It caters to the high-mix–high-value-addition product portfolio, offering volume flexibility to customers from eight strategically located manufacturing units, a design centre and a robust supply chain network. Focus on emerging segments in EVs, smart metering, railway signalling & safety, A&D, highend IT servers will ensure higher profitability plus volumes. 

Profits to quadruple in 3yrs: While PAT in FY26 will be 4x from FY23 levels, strategy to invest in backend semicon value chain ensures an early entry and much deeper presence in India’s electronics value chain. Despite higher NWC intensity, strong net margin profile will drive RoEs.