Kaynes Technology IPO opens this week: Key things to know

Kaynes Technology India Limited IPO opens for subscription on 10th November. The company is looking to raise up to Rs 857.82 crore through the public issue. Here are the details: 

Kaynes Technology Limited IPO Details

• Kaynes Technology IPO Date: 10 November - 14 November 2022
• Kaynes Technology IPO Price band: Rs 559 - Rs 587
• Kaynes Technology IPO Issue Size: Rs 857.82 crore (Fresh Issue of Equity shares aggregating up to Rs 530 crore and remaining OFS)
• Reservation: QIB 50%, Retail - 35%, NII 15%
• Minimum Investment: Rs 14,675
• Post Issue Implied Market Cap: Rs 3,275 – 3,413 crore
• Bid lot: 25 shares, and in multiples of 25 shares

Kaynes Technology Limited IPO: Objects of the Issue

The company proposes to utilize the IPO proceeds towards funding the following objects:

• Repayment/ prepayment, in full or part, of certain borrowings availed by the company.
• Funding capital expenditure towards the expansion of the existing manufacturing facility.
• 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 and general corporate purposes.

Kaynes Technology Limited IPO: About Kaynes Technology

• The company was incorporated in 2008 and is a leading end-to-end and IoT solutions-enabled integrated electronics manufacturing company.
• It provides conceptual design, integrated manufacturing, process engineering, and life-cycle support for players in industrial, automotive, aerospace, outer space, medical, nuclear, railways, and other segments.
• Kaynes operates 8 strategically located manufacturing facilities across India in the states of Karnataka, Himachal Pradesh, Haryana, Tamil Nadu, and Uttarakhand. 
• They have a portfolio of software and hardware accelerators, cloud platform-based service and solution offerings which includes IoT data and analytics platform, ODM product design, and vertical IoT solutions.
• Kaynes is an ISO 9001/14001/45001 BVCI-certified company. 

Kaynes Technology Limited IPO: Business verticals

• OEM – Turnkey Solutions – Box Build: They undertake 'Build To Print' or 'Build to Specifications of complex box builds, sub-systems, and products across various industry verticals.
• OEM – Turnkey Solutions – Printed Circuit Board Assemblies: They undertake turnkey electronics manufacturing services of cable harnesses, PCBAs, magnetics, and plastics ranging from prototyping to product realization including mass manufacturing.
• ODM: They offer ODM services in smart metering technology, smart street lighting, brushless DC technology, inverter technology, gallium nitride-based charging technology, and providing IoT solutions for making smart consumer appliances or devices IoT-connected. 
• Product Engineering and IoT Solutions: Under this, they offer conceptual design and product engineering services in industrial and consumer segments. 

Kaynes Technology Limited IPO: Industry Outlook

• The global ESDM market was estimated at USD 804 billion in 2020 and is expected to reach USD 1,002 billion in 2025 at a growth rate of 4.5%.
• The Automotive ESDM segment is expected to grow at a 29.2 % CAGR, from an estimated ₹ 50 billion in FY21 to Rs 180 billion in FY26.
• On the device front, the demand for IoT-based devices is expected to accelerate at a CAGR of 15.0% till 2025. 
• Electronics production in India is estimated at $ 67 billion in FY21 and is expected to grow at a CAGR of 32.3% to reach $272 billion by FY26.

Kaynes Technology Limited IPO: Listed Peers

The company's listed peers include names like Syrma SGS Technology Ltd, Dixon Technologies Ltd, and Amber Enterprises India Ltd. The company also has tough competition from unlisted (private companies) like SFO Technologies Pvt Ltd, Elin Electronics Ltd, Avalon Technologies Pvt Ltd, etc. 

It is important to note that Kaynes operates in different segments and its listed peers do not operate in all the segments. Hence, the comparison is not apple to apple. Below is the comparison of Kaynes with listed peers:

• In terms of total income (FY22), Kaynes is at the bottom of the table, Dixon being the largest player in the category.
• Earning Per Share (EPS) is also lower for Kaynes compared to listed peers like Dixon and Amber Enterprises.
• The positive is ROE and ROC for Kaynes, the company beats all its listed peers on both these parameters.
• All the listed peers are trading at high PE (Dixon being the highest). For FY22 numbers, Kaynes will be listed at PE same as Syrma and Amber.
• Return on Net Worth (RoNW) is marginally below Dixon and well above other listed peers.

Kaynes Technology Limited IPO: Financials

• Kaynes reported revenue of Rs 368.24 crore, Rs 420.63 crore, and Rs 706.25 crore for FY20, FY21, and FY22, respectively. The revenue has grown at a CAGR of 38.4%.
• For FY20, FY21, and FY22, the EBITDA reported by the company was Rs 41.33 crore, Rs 40.89 crore, and Rs 93.67 crore, respectively. It has more than doubled in this period. The EBITDA margin for the same period was 11.28%, 10.87%, and 59.03%, respectively.
• The net profit for FY20, FY21, and FY22 reported by Kaynes was Rs 9.36 crore, Rs 9.73 crore, and Rs 41.68 crore, respectively.
• For the last three financial years, the average EPS and RoNW were 4.8 and 12.3, respectively.
• The debt-to-equity ratio has come down to 0.84 in FY22 from 1.50 in FY20.

Kaynes Technology Limited IPO: Unique Selling Propositions

Internet of Things enabled solutions: They are end-to-end and IoT solutions enabled by integrated electronics manufacturing players and have capabilities across the spectrum of ESDM services. 

Diversified business model: Kaynes has a wide range of products that find application across industry verticals such as telecom, automotive, defense, space, IoT, and many more. Its diverse portfolio limits the exposure to downturns associated with a particular vertical. It also ensures their revenue is consistent.

Long-standing relationships with customers: They have established long-term relationships with well-known customers across the industries that they cater to. They have a diversified customer base with 229 customers in 21 countries across three continents. Their customers include Agappe Diagnostics Limited, Canyon Aero, Frauscher Sensor Technology India Private Limited, Hitachi Rail STS India Private Limited, etc.

Global certifications for each industry vertical: They adhere to global standards and have obtained various global certifications. It ensures that the processes comply with industry-specific, customer-specific, statutory health and safety, environmental and social, and governance requirements.

Kaynes Technology Limited IPO: Growth Potential

Focus on the full product: They intend to deploy part of the Net Proceeds to fund capital expenditure toward upgrading and expanding the existing facility. It will allow them to build a high value-added consumer electronic product portfolio, and expand business with customers for full box build. 

Leverage research and development capabilities: They can provide product design and development services and even whole product lifecycle services. They intend to leverage the experience and capabilities of its in-house design and research and development team to further ODM capabilities.

Focus on expansion across each vertical: They intend to undertake vertical-focused expansion, to expand the business using different strategies for different business verticals.

Continue to expand customer base: In FY20, FY21, and FY22, Kaynes served 283, 292, and 346 customers, respectively, across different business verticals. With the growing customer demand for their products, they intend to capitalize on this strong industry tailwind by continuing to grow their customer base.

Kaynes Technology Limited IPO: Risks

Dependency on top 10 customers: The top 10 customers contributed more than 50% of its revenue for FY22. They do not have firm commitment agreements with their customers. The loss of one or more such customers or a reduction in demand for their products could affect the company's business.

High competition: They work in the electronics system design and manufacturing industry. These are highly competitive industries and may create pricing pressure and market share pressure, which may affect Kaynes' financials.

Negative net operating cash flow: They have had negative net operating cash flows in the past and may continue to have negative cash flows in the future.

Raw material import: The imported raw materials accounted for 64.46% of their total purchases of raw materials in FY22. Any issues in the timely availability of semiconductors or any particular semiconductor components required for manufacturing will impact the company's business.

Kaynes Technology IPO: Detailed review and Analysts' Recommendation

• A robust rise in revenues: Kaynes Technology has seen a robust 38.5% CAGR rise in revenues between FY20- 22.
• Healthy rise in profits: Kaynes Technology’s net profit has grown from just Rs 9.4 crore in FY20 to 41.68 crore in FY22. 
• Stable margins: Bikaji has maintained healthy EBITDA margins between 9-13% over the last 3 years. 
• Niche player: Kaynes Technology is a leading end-to-end and IoT solutions-enabled integrated electronics manufacturing company. The company provides conceptual design, process engineering, integrated manufacturing and life-cycle support for major players in the automotive, industrial, aerospace and defence, outer-space, nuclear, medical, railways, Internet of Things ("IoT").
• Reasonable valuations: At the higher end of the price band,  Kaynes Technology is priced post-issue at a PE ratio of 85 times FY23 annualized EPS on a fully diluted basis. This is lower than peers SGS Syrma (167 times) Amber (187 times) and Dixon (160 times).  
• Kaynes Technology IPO review: Given factors such as a strong rise in revenues, healthy rise in profits, a good runway for growth and reasonable valuations, various external analysts have given a ‘positive’ rating on the company’s long-term prospects.

This is not investment advice. Investments in the securities market are subject to market risk, read all the related documents carefully before investing. Past performance is not indicative of future returns.