Q2FY24 Review: Kaynes Technology: Deepening presence in electronics value chain

2 Nov 2023 , 03:15 PM

Kaynes Technology deepens its presence in the domestic ESDM market with complex applications in EV value chain, HPC servers & railway electronics. Although investment across multiple developmental projects has impacted Q2 gross margins (yet industry leading OPM at 13.5%), mgmt. is confident of recouping the momentum in H2FY24 to deliver 15% OPMs for FY24. Commissioning of new capacities in H2FY24 and robust jump in order book (~Rs35bn) will further accelerate revenues in FY25. 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 high quality bet on the India ESDM market; reiterate BUY. 

Revenues to accelerate in H2 backed by robust order book: 

Automotive & Industrial contributed 70% of H1FY24 sales (+39% YoY). Assuming 35% of annual billings in H1, analysts of IIFL Capital Services expect Kaynes to deliver nearly 2x YoY sales in H2FY24 backed by solid order book of Rs34.6bn (2.6x TTM sales), even as Mgmt retains conservative guidance of Rs18bn. While automotive, industrial and railways will drive growth in H2, Kaynes eyes strong traction in A&D, IT PLI and rail electronics in FY25. New customer additions include large customers in EVs (incl 2W/4W, EV chargers & EV electronic OEM), medical devices for the US market and CDAC for DC servers (+ Large MNC for IT servers in H2). 

On-track for 15% OPMs despite soft profitability in H1: 

Commencement of commercial volumes in H2FY24 across multiple applications and verticals will drive better GMs (28-30% range) with strong operating leverage driving 16-17% OPMs (vs 13.5% in H1) and >2x PAT YoY aided by 1-2 pps lower tax incidence and double digit net margins. Mgmt targets to reduce NWC cycle to 100-110 days led by inventories which is elevated to support planned execution in H2. 

Awaiting GoI approval for OSAT; targets trail runs in HFY25: 

With land acquisition in place, Kaynes will focus on high end applications for OSAT and complex PCBs which are margin accretive. Details on technology JVs and funding expected in Q3FY24. IIFLe forecasts do not include them. Analysts of IIFL Capital Services have tweaked FY24/25 EPS by 1-2% with earnings outlook unchanged.