India achieved the significant feat of becoming the fourth country to land a spacecraft on the moon by landing Chandrayan-3 near the lunar south pole in August. An electronics manufacturer headquartered in Mysore, a city in close proximity to the tech hub of Bangalore made a small but significant contribution to this historic achievement.

Kaynes contributed the electronic systems that powered both the rover and the lander on the successful journey. Shares of the company have almost tripled giving a return of 234 percent since its debut on the Bombay Stock Exchange in November 2022. India’s electronics sector is still in its infancy.

However, Kaynes began quite early. It remained in India and invested there during a period when most people went abroad. It was a niche player, but it stuck to its vision and is benefiting from it. Kaynes Technology, a prominent domestic player with nine facilities, is set to benefit from India’s rapidly growing $18 billion (revenue) electronics system design and manufacturing (ESDM) sector.

Frost & Sullivan estimates that the business will increase fourfold to $73 billion by 2027. This is growing faster than the worldwide ESDM business, which is expected to generate $1.15 trillion in revenue by 2026, up from $880 billion in 2021, according to Frost and Sullivan.

Let’s further understand the business and future outlook the company holds to see if there is still an investment opportunity in this stock.

Kaynes Technology – Corporate Overview

Kaynes Technology (Kaynes) is a leading integrated electronics manufacturer that provides end-to-end and IoT-enabled solutions. Kaynes specializes in electronics system design and manufacture (ESDM) services for a wide range of industries, including automotive, industrial, aircraft, defence, outer space, nuclear, medical, railways, IoT, IT, and more. 

This lowers exposure to downturns associated with a specific vertical. It also maintains revenue constancy over time when clients serve different industry verticals with varying business or industry cycles.

Kaynes has more than 30 years of experience in conceptual design, process engineering, integrated production, and lifetime support. Kaynes’ production infrastructure allows them to handle high-mix, high-value products from many industries and create varying volumes.

Kaynes has built long-term relationships with well-known customers in the industries it serves over the last 30 years. Kaynes has a diverse consumer base, having served over 350 customers in 26 countries.

Kaynes Technology – Business Segments

The company has classified their business operations into following four verticals

OEM – PCBA

Kaynes Technology India Ltd. provides complete turnkey solutions for PCB assembly production. They offer prototype, sourcing (including supplier development for bare PCBs), test jig assembly, and PCB process design. They specialise in high mix, high technology, and flexible volume production.

They serve a variety of industries, including aerospace, defence and outer space, railroads, medical, IT/ITES, industrial, and automotive electronics. This segment remains the most revenue generating vertical, accounting for 62 percent of the total revenue in FY2023.

OEM – BOX Build

Kaynes Technology India Ltd has a robust manufacturing infrastructure that includes customised production lines for box assembly, integration, and testing. Their facilities are adequately suited to produce cable forms, harnesses, plastic moulding, and fabrication.

They also have experience designing and building custom testing devices, including firmware flashing fixtures, PCBA fixtures, end-of-line testers, and product functional testers. Using an efficient supply chain, they transport their OEM items straight to customers’ warehouses. In fiscal year 2023, this segment accounted for 30% of total sales.

Product Engineering and IoT Solutions

Kaynes offers conceptual design and product engineering services in both the industrial and consumer industries. Their digital engineering products increase client productivity by using cutting-edge technologies such as IoT, big data, machine learning, cloud computing, and media.

They also provide comprehensive IoT and cloud enablement solutions, IoT data and analytics platforms, and vertical IoT solutions. In the financial year 2023, this segment accounted for 5 percent of the total revenue.

ODM

The company offers a wide range of services for product design and development, including software, PCB, and mechanical design. They concentrate in generating tailored technological solutions through their Embedded Systems section, which caters to high-speed, multi-layer, mixed signal, and RF PCB design, as well as two-stage design reviews. In the financial year 2023, this segment accounted for 3 percent of the total revenue.

Kaynes Technology – Financials

In the fiscal year 2023, Kaynes Technology saw a substantial increase in revenue, surging by 59..44% to reach ₹1,126.11 crore as opposed to ₹706.25 crore in FY2022. Analyzing a span of four years, encompassing FY2020 to FY2023, the company displayed a robust Compound Annual Growth Rate (CAGR) of 45.15% in revenue.

Simultaneously, there was a noteworthy upturn in net profit, experiencing a 128% increase from ₹41.68 crore in FY2022 to ₹95.2 crore in FY2023. Over the cumulative four-year period from FY2020 to FY2023, the net profit showcased 116.66% CAGR.

In FY23, Kaynes Technology maintained favourable financial metrics with a Return on Equity (ROE) of 16.40% and Return on Capital Employed (ROCE) of 21.46%.

Kaynes Technology – Future Outlook

Well Diversified Portfolio

Kaynes has a diverse business profile, with applications across industry verticals such as CEA, industrial, telecom, aircraft and defence, IT, medical, and railway. It has a bigger B2B proportion, with industrials (37%), automotive (33%), and railways (10%) accounting for 80% of revenues. Kaynes is one of the fastest-growing EMS players, with revenue/EBITDA/PAT of 45/60/104% in FY20-23.

Given its diversified service offerings and market tailwinds, Kaynes has a high chance of growing at a quicker rate in the future.

Robust Order Book

Kaynes’ order book has expanded almost tenfold over the last three years, reaching INR 34 billion in H1FY23. Domestic orders account for 80-85% of the total, with the remainder going to international customers. Automotive, industrial, and railways account for 35%, 30-35%, and 15% of total orders, respectively.

The order book is a leading sign of the high demand from clients. At the end of December 2023, the company’s order book was at INR 38 billion. Automobile orders typically take 6-9 months to complete, but aerospace and railway orders take approximately two years. The weighted average execution period stands at 1.5 years.

Conclusion

With a diversified portfolio, robust order book, and strong financial performance, Kaynes Technology seems well-positioned for growth in India’s rapidly expanding electronics manufacturing sector. The company’s early investment in domestic manufacturing capabilities and long-standing customer relationships provide a solid foundation. 

However, increased competition and execution risks remain key challenges. What are your thoughts on Kaynes Technology’s prospects? Do you see the company sustaining its impressive growth trajectory amidst the favorable industry tailwinds? Share your views on the future outlook for this homegrown electronics manufacturer.

Written by Nalin Suriya

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