Kaynes Technology: Secular growth story intact

15 Feb 2024 , 03:13 PM

Analysts of IIFL Capital Services hosted Kaynes’ management at IIFL’s Investor conference in Mumbai. Management reiterated Rs17-18bn topline in FY24 and expects aggressive sales growth of 45-50% YoY led by execution in the Railways and A&D segments, aided by expected jump in government ordering post-elections, while OPMs likely to remain shy of 15%. Aggressive plans for NWC reduction to aid cashflow conversion while ensuring better margins going ahead. Focus on higher value-add and complex applications for OSAT and PCB manufacturing strives to create long term value. Analysts of IIFL Capital Services prefer Kaynes as a high quality bet on the India ESDM market; building in 41%/43% Cagr growth in sales and PAT over FY24-27. Analysts of IIFL Capital Services reiterate BUY with a TP of Rs3,162 (50x FY26). 

A&D visibility strengthens – 

Shift in Honeywell’s manufacturing base from Malaysia and GoI requirements increase sourcing from Indian EMS players, of which Kaynes will be a key beneficiary. Air Data sensors (Avionics) execution is expected to be ~Rs5bn p.a. (~50%, up from the earlier expected 30% as Honeywell narrows down number of Indian suppliers to two vs three earlier). High gestation period of switching suppliers (minimum 6 months) ensures a sticky business for Kaynes, while opening up possibilities of further cross-selling and upselling in the future. Ramp up in the A&D segment expected to drive mix to ~11% of FY25 sales (vs 2% in FY24). 

Foray into OSAT part of a bigger picture – 

Kaynes’ foray into OSAT, although driven by government subsidies (~75% of project cost ex- Land & Building, 50% from GoI to be received upfront), is primarily aimed at making the company a one-stop-shop integrated EMS player. With the incorporation of TAG committee recommendations, management expects government approvals to be imminent. Kaynes tar gets commissionin g of first set of lines and Proof-of-Concept in Q1FY25, with full-fled ged operations & revenue booking set to commence in H2FY25. 

Ambitious NWC target – 

Confident of achieving stated target of ~85 days NWC cycle in FY24 and further improvement to ~70 days by FY25, Kaynes has set an ambitious target of reducing NWC cycle to ~50 days over the medium to long-term led by aggressive inventory planning and increased channel financing initiatives. If achieved, it could materially strengthen cash conversions and drive OPM improvements.