28 November 2023 Initiating Coverage

Kaynes Technology
Execution superiority in a favourable ecosystem BUY
Kaynes Technology (Kaynes) is one of the prominent players in electronics
CMP (as on 24 Nov2023) INR 2,450
system design and manufacturing (ESDM) services with three decades of
experience (mainly in B-B). It serves various industries such as automotive, Target Price INR 2,850
industrial, aerospace, defence, outer space, nuclear, medical, railways, IoT, and NIFTY 19,795
IT. Kaynes is one of the key beneficiaries of the GoI’s focus on the
‘Aatmanirbhar Bharat’ initiative along with the global need of ‘China+1’. KEY STOCK DATA
COVID was an inflection point for the ESDM industry and India has seen a
Bloomberg code KAYNES IN
massive trend change thereafter. Top ESDM players have seen revenue CAGR
No. of Shares (mn) 58
of 14%-33% over the last three years, and Kaynes has clocked 45% CAGR. The
industry is expected to clock >30% CAGR over FY22-27E to reach INR 6trn, and MCap (INR bn) / ($ mn) 142/1,742
Kaynes aims to grow ahead of the industry. 6m avg traded value (INR mn) 437
We model a 42% revenue CAGR for FY23-26E to INR 32bn in FY26E (7x of gross 52 Week high / low INR 2,966/625
block). Kaynes has a superior operating margin (14-15%) and RoE (c.20%) metric
among peers given B-B products, focus on value-added products, scale of
STOCK PERFORMANCE (%)
operation, etc. Besides traditional business, Kaynes has announced its forays
into OSAT (phase-1 in Telangana, proof of concept by Apr’24, phase-2 in 3M 6M 12M

Karnataka), whose benefits will begin from FY25 onwards. Major benefits will Absolute (%) 32.0 85.2 235.6
be back-ended but considering its potential to achieve >INR 30bn revenue with Relative (%) 30.9 78.4 229.7
c.18% EBITDA margin at full efficiency (with both phases), we assign INR 23bn
value in our SoTP (with discounting of 18%). We value the traditional business
SHAREHOLDING PATTERN (%)
at 45x P/E on Dec-24 EPS and add INR 400/share value of OSAT (link). We
initiate coverage on Kaynes with a BUY rating and a TP of INR 2,850. Jun-23 Sep-23

▪ Buoyant industry tailwinds: The ESDM market is expected to sustain >30% Promoters 63.57 63.57

CAGR during FY22-27E to INR 6trn. High domestic demand for electronics FIs & Local MFs 13.12 15.59
products, GoI’s import substitution focus, and India’s rising reputation in FPIs 7.96 9.90
global manufacturing to be key growth drivers. The industry is broken down
Public & Others 15.35 10.94
between B-B and B-C in 30:70% mix. B-C gives high volume and low working
capital traction but is exposed to new entrants. While B-B is heavy on working Pledged Shares 0.00 0.00
capital with low competition and high margin, it delivers a healthy RoE. Source : BSE
▪ Kaynes superior execution: Kaynes registered revenue of INR 11bn in FY23 Pledged shares as % of total shares
with 33% revenue CAGR during FY19-23. Automotive remained a key
contributor with c.38% mix, followed by industrial at 27%, railways at 12%,
consumer at 9%, medical at 6% and IOT at 6% respectively. The automotive
vertical was a key driver with >50% CAGR during the last four years, and its
mix has improved to 38% in FY23 vs. 20% in FY19. Kaynes clocked 10x
improvement in its order book in the last three years. The company has also
de-risked its business model by diversified client/supplier mix. We model
revenue/EBITDA/PAT CAGR of 42/42/53% over FY23-26E
▪ Kaynes’ better scorecard than peers: Kaynes has been one of the fastest-
growing EMS players recording revenue/EBITDA/PAT of 45/60/104% over
FY20-23. Syrma grew by 73% while Avalon/Cyient saw revenue growth of Naveen Trivedi
14/22%. Kaynes RoCE at 20% is also superior to its peers (broadly 14-18%). [email protected]
+91-22-6171-7324
▪ Risk: The industry tailwinds are strong with enough investments in setting
up the ecosystem. We do not expect much business reversal risk due to the Paarth Gala
change in government (a key risk for many B-B stories, particularly after [email protected]
seeing a sharp stock run-up). However, we do see risks which are associated +91-22-6171-7336
with the nature of the business (particularly when growth assumptions are
very bullish along with rich valuation multiples). We see business risks such Riddhi Shah
as (1) client forfeit, (2) order execution delays, (3) change in policies, (4) delays [email protected]
+91-22-6171-7359
in payment, (5) global supplies of key RM, (6) cost of funds and (7)
intervention of state, bodies, etc. in key approvals.

HSIE Research is also available on Bloomberg ERH HDF <GO> & Thomson Reuters
Kaynes Technology: Initiating Coverage

Executive Summary
Favourable ecosystem, multi-year growth opportunity
India's electronics market is one of the fastest growing industries, which has seen a
significant demand spur during the last 2-3 years. The total electronics market
(domestic production and imports) was valued at >INR 7trn in FY21 and is growing at
a pace of 25-30%. It is expected that the market will be close to INR 20-21trn by FY26.
Out of this, domestic production stands at 74% in FY21 (INR 5trn) and it is expected to
reach 96% by FY26 (INR 20trn). Besides the fast-growing electronics market, the shift
from imports to domestic production will lead to robust growth in domestic
manufacturing in India.
The government’s ‘Aatmanirbhar Bharat’ initiative is driving India’s electronic
industry. The ‘Make in India’ initiative which focused on increasing India’s presence
in the global market faced various challenges like global competition, pro-
manufacturing government policies of key countries, India’s relatively small scale in
manufacturing and its underdeveloped supply chain. However, ‘Aatmanirbhar Bharat’
focused on replacing the imports with domestic manufacturing. A variety of incentives
have been laid down to create the essential infrastructure which led to a reduction of
manufacturing and capex costs.
Total electronics market (including imports) Total electronics domestic production (including
components)

Source: RHP, HSIE Research Source: RHP, HSIE Research

India ESDM market break-up

Source: Company, HSIE Research

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Kaynes Technology: Initiating Coverage

Global theme—China +1
The global ESDM market was USD 800bn in 2020 and it is expected to grow at c.5% to
reach USD 1,000bn market by 2025. China leads the global ESDM business with almost
45.5% share. China dominates the global market due to its cost-effectiveness and
technological leadership in electronics manufacturing. Ongoing digitalization, IoT,
and urbanisation are some megatrends that are driving the growth prospects. It is a
high-growth region due to operational cost benefits, availability of a large number of
highly skilled personnel, infrastructure, logistical advantages, and proximity to the
largest end-user base across all end-user verticals. However, after the COVID-19
pandemic, many global electronics manufacturers are contemplating on China + 1
strategy and looking for alternate manufacturing locations for export business. This is
creating tremendous investment potential for countries like Vietnam, India, and the
Philippines.
ESDM market breakup by countries (CY20) ESDM market breakup by countries (CY25E)

Source: Company, HSIE Research Source: Company, HSIE Research

Well-diversified portfolio among peers with an impetus to aid growth drivers

Kaynes boasts of a well-diversified business profile with a portfolio having
applications across industry verticals ranging from CEA, industrial, telecom, aerospace
& defence, IT, medical and railway. It has a higher B2B share with industrials
(37%)/automotive (33%) and railways (10%) contributing 80% of revenues. Kaynes has
been one of the fastest-growing EMS players recording revenue/EBITDA/PAT of
45/60/104% over FY20-23. During the same period, its order book has grown c.6-7x.
Given its diverse service offerings and industry tailwinds, we believe Kaynes will
continue to grow at a fast clip and its revenue/EBITDA/PAT is expected to grow by
42/42/53% over FY23-26E.
India EMS player’s presence across various end-use industries
Mobile Aerospace &
Company CEA Automotive Industrial Telecom IT Medical Railway
Phones Defence
Kaynes  ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓
Avalon   ✓ ✓ ✓ ✓  ✓ ✓
Syrma SGS  ✓ ✓ ✓ ✓   ✓ 
Amber  ✓       ✓
Dixon ✓ ✓      ✓ 
Elin Electronics  ✓       
Bharat FIH ✓ ✓ ✓  ✓ ✓ ✓  
Sanmina-SCI   ✓ ✓ ✓ ✓ ✓ ✓ 
SFO Technologies   ✓ ✓ ✓ ✓  ✓ 
VVDN Technologies   ✓ ✓ ✓  ✓  
Source: Company, HSIE Research

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Kaynes Technology: Initiating Coverage

India EMS – revenue CAGR India EMS – EBITDA CAGR

Source: Company, HSIE Research; *Bloomberg estimates Source: Company, HSIE Research; *Bloomberg estimates

India EMS—PAT CAGR India EMS—order book

Source: Company, HSIE Research; *Bloomberg estimates Source: Company, HSIE Research

India EMS—order book to bill (x) India EMS—fixed asset turnover

Source: Company, HSIE Research Source: Company, HSIE Research

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 Kaynes Technology: Initiating Coverage

Order book is up 10x in the last three years

Kaynes order book has grown by 10x during the last three years to INR 34bn in
Order book breakup
H1FY23. Domestic contributes 80-85% of the order book and the rest is for international
business. In the order book, automotive, industrial and railways contribute 35%, 30-
35% and 15% respectively. The order book is a lead indicator of the strong demand
from clients. Typically, automobile orders get 6-9 months in execution, and aerospace
& railways get around two years. The weighted average execution period is 1.5 years.
Particulars (INR mn) FY20 FY21 FY22 FY23 H1FY24
Order Book 3,522 6,705 15,166 24,862 34,618
Chg in order book 3,183 8,461 9,696 9,756
Revenue 3,682 4,206 7,062 11,261 6,580

Long relationship with clients Focus on widening client base to de-risk

Kaynes has de-risked its business model by widening the client base. Top-1 clients
contribute 12% of the business while top-5 and top-10 contribute 37% and 51%
respectively. The growth is broad-based as company growth and client mix have not
changed over the last four years.

Client-wise revenue mix (FY23) Client-wise revenue change Client-wise revenue CAGR(FY19-23)

Source: Company, HSIE Research

Kaynes has long-standing relationships with their clients, and the average relationship
is in the range of 9-10 years whereas industrial and railways clients have been present
for >10 years. In automotive, IJL (India Japan Lighting Pvt Ltd) is the top client while
in the industrial vertical the key customers are from global manufacturers of electronic
instruments and electromechanical devices. In the railways vertical, Siemens and
Hitachi are the key customers.

India and international both growing rapidly

The domestic revenue mix stands at 85% in FY23 and clocked a CAGR of 33% during
FY19-23. International clocked robust growth as well and registered a 30% revenue
CAGR during FY19-23. The international business has a presence in Europe, North
America, and South East Asia. Europe is the top market for Kaynes and it contributes
60% of the total international business vs. 40% in FY20.

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Kaynes Technology: Initiating Coverage

Domestic/international revenue mix Domestic/international revenue mix change

Source: Company, HSIE Research Source: Company, HSIE Research

Cost structure—huge leverage on employee cost
Kaynes has a high dependence on raw material prices as these stand at c.70% of sales.
Vertical-wise operating
Thereby, currency, global prices and customs duty have high sensitivity for the raw
margin quadrants
material basket. Besides, in the variable cost, employee cost is a significant contributor
Aerospace High
with 8-10% of sales. Kaynes with rapid revenue growth has seen huge operating
Railways High
leverage on employee costs. With revenue registered at 33% CAGR during FY19-23,
Industrial Medium
Medical Medium employee cost only saw 15% CAGR. Employee cost at % of sales was at 12% in FY19
Auto Low which has gone down to 7% in FY23, almost a 500bps swing, and this gives a boost to
Consumer Low Kaynes’ operating margin. EBITDA margin was up by c.500bps during FY19-23 to 15%
in FY23. PBT margin even saw higher expansion at 750bps to a healthy 11% in FY23.

Indexing of cost structure

Particulars FY19 FY20 FY21 FY22 FY23 CAGR (%)
Revenue 100 100 100 100 100 33%
RM 66 66 68 69 69 34%
Gross Profit 34 34 32 31 31 30%
Employee Cost 12 11 11 9 7 15%
Power & fuel 1 1 1 1 0 15%
Repairs 1 1 1 1 0 8%
Travelling and conveyance 1 1 0 0 0 9%
Legal and professional fee 0 0 0 0 0 26%
Consumption of stores & spares 2 3 2 2 3 50%
R&D expense 0 - 0 0 0 70%
Contract wages 2 3 2 2 1 21%
Others 5 3 4 3 2 13%
Total expenses 90 89 90 87 85 31%
EBITDA 10 11 10 13 15 48%
Depreciation 1 2 2 2 2 38%
EBIT 8 9 7 11 13 50%
Other Income 1 1 1 1 1 48%
Interest 5 6 6 4 3 17%
PBT 4 4 3 8 11 75%
Tax 1 1 0 2 3 68%
PAT 3 3 2 6 8 77%
Margin trend (%)
GPM (%) 34% 34% 32% 31% 31%
EBITDA margin (%) 10% 11% 10% 13% 15%
EBIT margin (%) 8% 9% 7% 11% 13%
PBT margin (%) 4% 4% 3% 8% 11%

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Kaynes Technology: Initiating Coverage

Healthy RoCE of >20% with a superior operating margin

Kaynes has one of the best operating margin metrics, given the company’s business
model of value-added products. High revenue growth has provided huge operating
leverage to Kaynes resulting in a sharp improvement in EBITDA margin. RoCE of 20%
in FY23 is the best among its peer set.
India EMS—Gross Margin % India EMS—EBITDA Margin %

India EMS – PBT Margin % India EMS – PAT margin %

Source: Company, HSIE Research Source: Company, HSIE Research

India EMS – RoE % India EMS – RoCE %

Source: Company, HSIE Research Source: Company, HSIE Research

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Kaynes Technology: Initiating Coverage

OSAT a big opportunity

GoI remains focused on building the overall semiconductor ecosystem which in turn
will help catalyze India’s rapidly expanding electronics manufacturing and innovation
ecosystem. In its bid to do so, GoI has approved the Semicon India programme with a
total outlay of INR 760bn for the development of the semiconductor and display
manufacturing ecosystem in the country. Keeping in mind the larger opportunity at
hand, Kaynes has taken baby steps by getting into Outsourced Semiconductor
Assembly and Test (OSAT) and bare PCB manufacturing. In terms of project timelines,
Kaynes expects to begin trial runs for the first line by Apr’24 and begin commercial
production by H2FY25. It is looking to install 12 lines by FY25. The total investment
required is envisaged to be INR 28.5bn. Kaynes expects to achieve INR 30bn revenue
(both phases) with 18-20% EBITDAM on these businesses once they stabilize.
Valuation and reco - Rich valuation but robust growth normalizing quickly
Kaynes registered revenue of INR 11bn in FY23 with 33% revenue CAGR during FY19-
23. Automotive remained a key contributor with c.38% mix followed by industrial at
27%, railways at 12%, consumer at 9%, medical at 6% and IOT at 6% respectively.
Kaynes clocked 10x improvement in its order book in the last 3 years. The company
has also de-risked its business model by diversified client/suppliers mix. We model
revenue/EBITDA/PAT CAGR of 42/42/53% over FY23-26E.
Besides traditional business, Kaynes has announced its forays into OSAT (phase-1 in
Telangana, proof of concept by Apr’24, phase-2 in Karnataka), benefits to begin from
FY25 onwards. Major benefits will be back ended but considering its potential to
achieve >INR 30bn revenue with c.18% EBITDA margin at full efficiency (with both
phases), we assign INR 23bn value in our SoTP (with discounting of 18%). We value
traditional business at 45x P/E on Dec-24 EPS and add INR 400/share value of OSAT
(link). We initiate coverage on Kaynes with BUY rating with TP of INR 2,850.
TP table OSAT valuation
Valuation Dec-24 PAT (FY30E) 1,783
Traditional Business P/E (x) 30
EPS (Dec-24) 54.3
Value (INR mn) 53,481
P/E (x) 45.0
Disc rate (%) 18%
Value per share 2,450
Disc value (INR mn) ₹ 23,000
OSAT
Value of business 23,000 Value per share ₹ 400
Value per share 400
Target Price 2,850
Implied P/E (x) 52.5
CMP 2,450
Up 16%

OSAT assumption, discounting and valuation

Particulars (INR mn) FY25E FY26E FY27E FY28E FY29E FY30E
Revenue 472 3,220 8,400 12,220 18,338 25,628
EBITDA (236) 225 1,008 1,833 3,301 4,613
EBITDAM -50% 7% 12% 15% 18% 18%
PBT (461) (321) (124) 267 1,140 2,148
ETR % 17% 17% 17% 17% 17% 17%
Tax - - (21) 45 194 365
PAT (461) (321) (103) 222 947 1,783
Toal investment 1,150 5,250 10,850 17,150 20,450 28,450
Asset Turns (x) 0.1 0.4 0.6 0.7 0.8
Kaynes investment 288 1,313 2,713 4,288 5,113 7,113

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 Kaynes Technology: Initiating Coverage

Business mix
Revenue break-up: Kaynes registered revenue of INR 11bn in FY23 with 33% revenue
CAGR during FY19-23. Automotive remained a key contributor with c.38% mix
followed by industrial at 27%, railways at 12%, consumer at 9%, medical at 6% and IOT
at 6% respectively. The automotive vertical was a key driver with >50% CAGR during
the last four years, and its mix has improved to 38% in FY23 vs. 20% in FY19.

Revenue mix (FY23)—vertical wise Revenue mix change Revenue CAGR (FY19-23)

Source: Company, HSIE Research

Segment-wise revenue mix: Segment-wise, OEM-PCBA contributes >60% of the
revenue mix, followed by OEM-Box Build at 30%. OEM-PCBA was a key driver with
c.38% CAGR during the last four years, and its mix has improved to 62% in FY23 vs.
52% in FY19.
Revenue mix (FY23)—segment wise Revenue mix change Revenue CAGR (FY19-23)

Source: Company, HSIE Research

Order book up 10x in the last three years: Kaynes’ order book has grown by 10x
Order book breakup during the last three years to INR 34bn in H1FY23. Domestic contributes 80-85% of the
order book and the rest is contributed by international business. In the order book,
Domestic
80% automotive, industrial and railways contribute 35%, 30-35% and 15% respectively. The
order book is a lead indicator of the strong demand from clients. Typically, automobile
orders get 6-9 months in execution, and aerospace & railways get around two years.
Weighted average is 1.5 years execution period.
Particulars (INR mn) FY20 FY21 FY22 FY23 H1FY24
International
20%
Order Book 3,522 6,705 15,166 24,862 34,618
Chg in order book 3,183 8,461 9,696 9,756
Revenue 3,682 4,206 7,062 11,261 6,580

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Kaynes Technology: Initiating Coverage

Focus on widening client base to de-risk

Kaynes has de-risked its business model by widening the client base. Top-1 client
contributes 12% of the business while top-5 and top-10 contribute 37% and 51%
respectively. The growth is broad-based as company growth and client mix have not
changed over the last four years.
Client-wise revenue mix (FY23) Client-wise revenue change Client-wise revenue CAGR(FY19-23)

Source: Company, HSIE Research

Kaynes has long-standing relationships with its clients, and the average relationship is
in the range of 9-10 years whereas industrial and railways clients are >10 years. In
automotive, IJL (India Japan Lighting Pvt Ltd) is the top client while in the industrial
vertical, the key customers are from global manufacturers of electronic instruments
and electromechanical devices. In the railways vertical, Siemens and Hitachi are the
key customers.

Source: HSIE Research Source: HSIE Research

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Kaynes Technology: Initiating Coverage

Customer base vertical-wise

Number of Customers Average period of
(Fiscal 2022) business relationship of
Industry Verticals
top 10 customers
Domestic International
(years)*
Automotive 67 5 5.20
Industrial 179 29 8.78
Aerospace, defence, outer space, nuclear 23 2 7.00
Medical 23 6 6.30
Railways 10 5 8.80
IoT/IT 16 7 7.44
Consumers 6 1 3.67

Top clients
Agappe Diagnostics Limited
Canyon Aero (formerly Cobham Aerospace Communications) (“Canyan AERO”)
Frauscher Sensor Technology India Private Limited
Hitachi Rail STS India Private Limited
India Japan Lighting Private Limited
Siemens Rail Automation Private Limited
Iskraemeco India Private Limited
Tonbo Imaging India Private Limited

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Kaynes Technology: Initiating Coverage

Long-standing relationship with suppliers

Kaynes has also been focusing on de-risking its business model by widening the
supplier base. The top-5 suppliers contributed 25% while top-10 suppliers and top-15
suppliers contributed 31% and 37% respectively in FY22.
Supplier mix (FY22) Long-standing relationship with Number of suppliers
suppliers

Source: Company, HSIE Research

Domestic & imports of purchase Domestic & import trend Domestic and import purchase
(FY22) CAGR (FY20-22)

Source: Company, HSIE Research

Details of the countries from where the raw materials were imported
Details of Purchase (INR mn) FY20 FY21 FY22 CAGR
Domestic 1,115 1,090 1,961 33%
Imports 1,616 1,940 3,557 48%
Total 2,731 3,031 5,518 42%
Details of the countries from where the raw materials were imported
Singapore 962 1,075 1,995 44%
China 90 123 358 99%
USA 124 139 305 57%
Hong Kong 80 101 180 50%
UK 80 94 118 21%
Others 280 408 602 47%
Total 1,616 1,940 3,557 48%
% mix
Singapore 60% 55% 56%
China 6% 6% 10%
USA 8% 7% 9%
Hong Kong 5% 5% 5%
UK 5% 5% 3%
Others 17% 21% 17%
Total 100% 100% 100%

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Kaynes Technology: Initiating Coverage

India and international both growing rapidly

Domestic revenue mix stands at 85% in FY23 and clocked a CAGR of 33% during FY19-
23. International clocked robust growth and registered 30% revenue CAGR during
FY19-23. International business has a presence across Europe, North America, and
South East Asia. Europe is the top market with Kaynes which contributes 60% of the
total international business vs. 40% in FY20.
Domestic/international revenue mix Domestic/international revenue mix change

Source: Company, HSIE Research Source: Company, HSIE Research

India and international revenue trend

Revenue by Geography FY20 FY21 FY22 FY23
India 2,927 3,128 5,651 9,600
Outside India 755 1,079 1,412 1,662
North America 276 306 443 338
Europe 312 361 791 1,014
South-East Asia 37 63 52 113
Others 131 348 126 198
Total 3,682 4,206 7,062 11,261
Domestic (%) 79% 74% 80% 85%
Export (%) 21% 26% 20% 15%
Export countries 17 18 20 26

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Kaynes Technology: Initiating Coverage

Cost structure—huge leverage on employee cost

Kaynes has a high dependence on raw material prices as they stand at c.70% of sales.
Thereby, currency, global prices and customs duty have a high sensitivity for the raw
material basket. Besides, in the variable cost, employee cost is a significant contributor
with 8-10% of sales. Kaynes with rapid revenue growth has seen huge operating
leverage on employee costs. With revenue registering a 33% CAGR during FY19-23,
employee cost only saw a 15% CAGR. Employee cost % of sales was at 12% in FY19
which has gone down to 7% in FY23, almost a 500bps swing during the period to boost
operating margin for Kaynes. EBITDA margin up by c.500bps during FY19-23 to 15%
in FY23. PBT margin even saw higher expansion at 750bps to a healthy 11% in FY23.

Indexing of cost structure

Particulars FY19 FY20 FY21 FY22 FY23 CAGR (%)
Revenue 100 100 100 100 100 33%
RM 66 66 68 69 69 34%
Gross Profit 34 34 32 31 31 30%
Employee Cost 12 11 11 9 7 15%
Power & fuel 1 1 1 1 0 15%
Repairs 1 1 1 1 0 8%
Travelling and conveyance 1 1 0 0 0 9%
Legal and professional fee 0 0 0 0 0 26%
Consumption of stores & spares 2 3 2 2 3 50%
R&D expense 0 - 0 0 0 70%
Contract wages 2 3 2 2 1 21%
Others 5 3 4 3 2 13%
Total expenses 90 89 90 87 85 31%
EBITDA 10 11 10 13 15 48%
Depreciation 1 2 2 2 2 38%
EBIT 8 9 7 11 13 50%
Other Income 1 1 1 1 1 48%
Interest 5 6 6 4 3 17%
PBT 4 4 3 8 11 75%
Tax 1 1 0 2 3 68%
PAT 3 3 2 6 8 77%
Margin trend (%)
GPM (%) 34% 34% 32% 31% 31%
EBITDA margin (%) 10% 11% 10% 13% 15%
EBIT margin (%) 8% 9% 7% 11% 13%
PBT margin (%) 4% 4% 3% 8% 11%

Vertical-wise operating margin quadrants

Aerospace High
Railways High
Industrial Medium
Medical Medium
Auto Low
Consumer Low

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Kaynes Technology: Initiating Coverage

Company background
Kaynes Technology India Ltd (Kaynes) is a prominent player in integrated electronics
manufacturing, offering end-to-end and IoT-enabled solutions. With expertise in
electronics system design and manufacturing (ESDM) services, Kaynes caters to
various sectors such as automotive, industrial, aerospace, defence, outer space, nuclear,
medical, railways, IoT, IT, and more. With over three decades of experience, Kaynes
provides conceptual design, process engineering, integrated manufacturing, and life-
cycle support. Given its manufacturing infrastructure, Kaynes is able to handle high-
mix and high-value products across different industries and has the flexibility to
produce variable volumes. Kaynes’ operations can be classified as follows:

▪ OEM—Box Build: Kaynes undertakes ‘Build to Print’ or ‘Build to Specifications’

of complex box builds, sub-systems and products across various industry verticals.

▪ OEM—Turnkey Solutions—PCBAs: Kaynes undertakes turnkey electronics

manufacturing services of PCBAs, cable harnesses, magnetics and plastics ranging
from prototyping to product realization including mass manufacturing.

▪ ODM: Kaynes offers ODM services in smart metering technology, smart street
lighting, BLDC technology, inverter technology, gallium nitride-based charging
technology and IoT solutions for making smart consumer appliances or devices
IoT-connected.

▪ Product engineering and IoT Solutions: Kaynes offers conceptual design and
product engineering services in industrial and consumer segments. Their digital
engineering offerings leverage the latest technologies including IoT, big data,
machine learning, cloud and media to improve customers’ efficiency. They also
provide end-to-end IoT and cloud enablement solutions and offer IoT data and
analytics platforms and vertical IoT solutions.

Business Evolution and Key Milestones

Source: Company

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Kaynes Technology: Initiating Coverage

Kaynes offers a wide-ranging product portfolio having applications across industry

verticals such as automotive, telecom, aerospace and defence, space, medical, IoT and
industrial, each of which is individually growing. This in turn limits exposure to
downturns associated with a particular vertical. It also ensures consistency of revenues
across periods on account of customers serving different industry verticals with
different business or industry cycles.
Diversified product portfolio

Source: Company

End-to-end design & engineering capabilities encompassing service offerings across entire customer value chain

Source: Company

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Kaynes Technology: Initiating Coverage

Over the past three decades, Kaynes has established long-term relationships with well-
known customers across the industries it caters to. Kaynes has a diversified customer
base and has served 350+ customers in 26 countries. Their continued success is, in part,
due to customer-centric practices such as open book costing, internal and external
audits, and direct shipments to end customers.
Long standing relationship with marquee customer base

Source: Company

Kaynes currently operates through its nine advanced manufacturing facilities to

undertake high mix and high-value products with variable or flexible volumes. Kaynes’
operations are complying with global standards with 12 global accreditations—most
for an ESDM company in India. It has a dedicated research facility at Mysore,
Bengaluru and Ahmedabad with a 75+ member R&D team.
Manufacturing facilities Global certifications/ R&D capabilities

Source: Company Source: Company

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Kaynes Technology: Initiating Coverage

Manufacturing plants and capacity

Location Verticals Area (Sq. Ft) Area (acre) Owned/Leased
Mysore, Karnataka – Unit I Railways, Defence and Aerospace, Medical and Industrials 1,26,085 2.89 Owned
Mysore, Karnataka – Unit II Railways, Defence and Aerospace, Medical and Industrials Leased
Parwanoo, Himachal Pradesh IT, Telecom, Industrial, Medical and Automotive 5,253 0.12 Owned
Selaqui, Uttarakhand IT and Industrial 5,500 0.13 Leased
Bengaluru, Karnataka – Unit I Automotive, Medical, IOT, IT and Industrial 12,425 0.29 Leased
Bengaluru, Karnataka – Unit II Automotive and Industrial 13,447 0.31 Leased
Chennai, Tamil Nadu Automotive, Medical and Industrial 10,125 0.23 Leased
Manesar, Haryana Industrial, Medical and Automotive 88,000 2.02 Leased

Board of Directors Leadership team

Name Name
Promoter & Promoter Group Representation on BoD Ramesh
Managing Director
Kunhikannan
Savitha Ramesh Chairperson and Wholetime Director
Rajesh Sharma CEO
Ramesh Kunhikannan Managing Director
Jairam Paravastu
Other Board of Whole-time Director and CFO
Sampath
Directors Col. Sharath Kumar
Jairam Paravastu SVP - International Business
Whole-time Director and CFO Bhat (Retd.)
Sampath Col. Dilip Nambiar
SVP - Operations
Poornima Ranganath Independent Director (Retd.)
Anup Kumar Bhat Independent Director Govind Menokee Head - Information Technology

Heinz Franz Moitzi Independent Director Premita Govind Head - Human Resources

Koshy Alexander Independent Director Gaurav Mehta SVP - Business Development

Murali S G Independent Director Abdul Nazar SVP - Business Development (Auto)

Source: Company Vishwanathan K SVP - Supply Chain Management
G Sriram VP - Operations
Sajan Anandaraman Head - Commercial & Corporate Affairs
Balasubramanian R Deputy CFO
Ramachandaran
Chief Strategy Officer, CS & Compliance Officer
Kunnath
Source: Company

IPO—Issue Details Utilisation of proceeds from IPO

IPO Shares # Value (IN mn) Objective of IPO Amount (INR mn)
Fresh Issue 90,28,960 5,300 Repayment/ prepayment of borrowings 1,300
OFS 55,84,664 3,278
Capacity expansion of existing facilities 989
Total 1,46,13,624 8,578
Setting up new facility at Chamarajanagar 1,493
OFS
Working capital requirements 1,147
- Promoter (Ramesh Kunhikannan) 20,84,664 1,224
General corporate purposes 1,328
- Investor - Freny Firoze Irani 35,00,000 2,054
Issue Price 587 Net Proceeds 6,257

Source: Company Source: Company; includes INR 1,300mn from pre-IPO placement

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Industry
ESDM evolution and scope of service
The electronics system design & manufacturing (ESDM) industry globally began in
1970 and ESDM service providers were primarily engaged in contract manufacturing.
During the recession period of the 1990s, many OEMs saw downsizing and the contract
manufacturing business grew rapidly. Thereafter, the industry has seen consistent
progression in the last two decades.
ESDM companies offer a range of services like (1) product design (hardware &
software design), (2) prototyping of electronics schematic, (3) product testing, (4) PCB
assembly, (5) Box assembly (housing of PCBA in a small enclosure), (6) system
integration, (7) solutions design and (8) repairs and rework services.
Global theme—China +1
The global ESDM market was USD 800bn in 2020 and it is expected to grow at c.5% to
reach USD 1,000bn market by 2025. China leads the global ESDM business with almost
45.5% share. China dominates the global market due to its cost-effectiveness and
technological leadership in electronics manufacturing. Ongoing digitalization, IoT,
and urbanisation are some megatrends that are driving the growth prospects. It is a
high-growth region due to operational cost benefits, availability of a large number of
highly skilled personnel, infrastructure, logistical advantages, and proximity to the
largest end-user base across all end-user verticals. However, after the COVID-19
pandemic, many global electronics manufacturers are contemplating on China + 1
strategy and looking for alternate manufacturing locations for export business. This is
creating tremendous investment potential for countries like Vietnam, India, and the
Philippines.
ESDM market break-up by countries (CY20) ESDM market break-up by countries (CY25E)

Source: Company, HSIE Research Source: Company, HSIE Research

ESDM market break-up by industry application (CY20) ESDM market break-up - industry application (CY25E)

Source: Company, HSIE Research Source: Company, HSIE Research

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India setting up for big opportunities

India contributed c.2% of the global ESDM market in 2020. The government, however,
is giving a strong push to position India as a prime site for the production of electronics.
Under the NPE, India announced various programmes in 2019, including EMC 2.0, to
improve the infrastructure of the electronics manufacturing sector and provide
incentives to manufacture more products that promote the industry in India. The PLI
programme, which benefits electronics manufacturing firms, was introduced in 2020.
In the southern state of Tamil Nadu, in Chennai, an electronic manufacturing corridor
is being built. The EMC Smart City investment in Greater Noida is planned at USD
162.7 million. Kaynes, Jabil, Dixon, Flextronics, SFO, Elin, Rangsons, and Centum are
among the companies that have invested in manufacturing capacity as a result of
‘Make in India policy’ efforts.
Key government incentives, policies and schemes
India PLI Scheme, SPECS, EMC 2.0, MEIS, DLI, Scheme for ATMP/ OSAT units
China China Standards 2035; Made in China 2025
United States National Defense Authorization Act of 2021 (NDAA)
Europe Industry 4.0 Policies, Digital Single Market Strategy; Industrial Policy Strategy
Vietnam National industrial development policy through 2030
Thailand Thailand 4.0 Strategy
Indonesia National Industrial Policy
Singapore Electronics Industry Transformation Map (ITM)

India's electronics market is one of the fastest growing industries, which has seen a
significant demand spur during the last 2-3 years. The total electronics market
(domestic production and imports) was valued at INR 7trn in FY21 and is growing at
a pace of 25-30%. It is expected that the market will be close to INR 20-21trn by FY26.
Out of this, domestic production stands at 74% in FY21 (INR 5trn) and it is expected to
reach 96% by FY26 (INR 20trn). Besides the fast-growing electronics market, the shift
from imports to domestic production will lead to robust growth in domestic
manufacturing in India.
The government’s ‘Aatmanirbhar Bharat’ initiative is driving India’s electronic
industry. The ‘Make in India’ initiative which focused on increasing India’s presence
in the global market faced various challenges like global competition, pro-
manufacturing government policies of key countries, India’s relatively small scale in
manufacturing and its underdeveloped supply chain. However, ‘Aatmanirbhar Bharat’
focused on replacing the imports with domestic manufacturing. A variety of incentives
have been laid down to create the essential infrastructure which led to a reduction of
manufacturing and capex costs.
The Indian government is attempting to enhance manufacturing capabilities across
multiple electronics sectors and establish the missing links in order to make the Indian
electronics sector competitive globally. India is positioned as a destination for high-
quality design work as well as a cost-competitive alternative. Many multinational
corporations have established or expanded captive centres in India. Increasing
penetration of consumer electronics in semi-urban and rural markets, a shift in lifestyle
among the Gen Y population, and the adoption of smart devices are some of the key
drivers that are assisting the rapid expansion of this industry.

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Kaynes Technology: Initiating Coverage

Total electronics market (including imports) Total electronics domestic production (including
components)

Source: Company, HSIE Research Source: Company, HSIE Research

India’s high dependence on the import of electronic products

The total import of electronics products was at INR 3,850bn in FY20 as compared to
INR 2,296bn in FY15, growing at a CAGR of c.10%. China, HK and Singapore combined
contribute c.70% of the total imports for India. Laptops, TV panes, and storage devices
are the key contributors to India’s imports.
List of Top 10 Imported Electronic Products by Value, Import of INR 3,850bn Electronic Products by Key
India (FY20) Countries (FY20)

Source: Company, HSIE Research Source: Company, HSIE Research

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Exports growing at a fast pace, still contributing <25% of our imports

The total export of electronics products was INR 829bn in FY20 as compared to INR
383bn in FY15, growing at a CAGR of c.16%. The USA, the UAE and China combined
contribute c.40% of India’s total exports. Mobile phones, engine control units, and
industrial machinery are the key contributors.
List of Top 10 exported Electronic Products by Value, Export of INR 829bn Electronic Products by Key
India (FY20) Countries (FY20)

Source: Company, HSIE Research Source: Company, HSIE Research

Import and export trend and mix change

(INR bn) FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22E
Import 2,296 2,681 2,876 3,409 4,015 3,851 3,888 4,000
Export 383 391 400 412 619 829 786 1,461
Export/Import Mix (%) 17% 15% 14% 12% 15% 22% 20% 37%

Economic Comparison on Favourable Labour Market Comparison, India, China and Vietnam
Manufacturing Parameter, India, China and (FY20)
Vietnam (FY20)
Parameters India China Vietnam Parameters India China Vietnam
Population (mn) 1379 1414 97.4 Total labour force (mn) 471.7 750.6 56.5
Annual GDP (USD Tn) 2.66 14.86 0.34
Total labour force, female (mn) 26.2 63.7 62.2
Inflation (%) 6.2 2.4 3.2
Labour force participation rate (% of
Manufacturing Value Added (% of 51.1 71.0 68.6
13 26 16.7 population)
GDP)
Employment in industry (% of total
Export (USD Tn) 0.47 2.73 0.28 26.2 28.2 28.4
employment)
Imports (USD Tn) 0.48 2.35 0.27 Wage and salaried workers (% of total
23.9 53.5 44.4
Manufacturing Risk Index (Rank) 3 1 4 employment)
FDI Investments (USD bn) 64 163 17 Average daily wages - manufacturing (USD) 6.0 35.5 10.5
Source: Company, HSIE Research Source: Company, HSIE Research

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ESDM addressable market to grow >30% CAGR

The addressable market of ESDM in India was c.INR 1.1trn in FY21 and it is expected
to reach c.INR 6trn by FY27. The industry is expected to grow at a pace of 32% CAGR
during this period. IoT & embedded systems, telecom & networking and LED lighting
are the top contributors to the market and these are growing at a rapid pace.
India ESDM market breakup

ESDM market break by industry applications in India

FY21 FY26E
Products CAGR (%)
% mix INR bn % mix INR bn
Mobile Phones 64% 688 69% 4,149 43%
CEA 13% 137 10% 568 33%
Automotive 5% 50 3% 179 29%
Industrial 4% 45 2% 120 22%
Telecom 4% 42 2% 120 23%
A&D (aerospace & defence) 3% 27 3% 167 44%
IT 2% 25 6% 359 71%
Medical 1% 15 2% 90 43%
Railways 1% 5 1% 36 46%
Others 3% 35 3% 191 40%
Total 100% 1,069 100% 5,978 41%
Source: Frost & Sullivan Analysis
Global PCB market

India PCB market

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ESDM market break by industry applications (FY21) ESDM market break by industry applications (FY26E)

Source: HSIE Research Source: HSIE Research

Recent developments in India - To drive ecosystem

PLI scheme in 13 Key Sectors (FY21-FY22)

Approved financial outlay over
Sectors
5-year period (INR bn)
Mobile manufacturing and specified electronic components 410
Critical key starting materials/drug intermediaries, API 69
Manufacturing of medical devices 34
Advance chemistry cell ACC Battery 181
Electronic/Technology Products 50
Automobiles and Auto Components 259
Pharmaceuticals drugs 150
Telecom & Networking Products 122
Textile Products 107
Food Products 109
High Efficiency solar PV modules 45
White Goods (Acs & LEDs) 62
Speciality steel 63
Total 1,662

EMC Electronics Manufacturing Cluster

Total investment
Total Land allotted Total GIA Released - Total number of Land Total number of
Committed -
S. No. Duration for EMC - Cumulative Cumulative (Rs. Allottees - Operational Units -
Cumulative (Rs.
(Acre) Crore) Cumulative Cumulative
Crore)
1 2016-17 46 340 42 37 3
2 2017-18 246 6,300 264 66 16
3 2018-19 385 10,079 484 90 22
4 2019-20 883 20,792 612 148 30
5 2020-21 1,043 43,250 757 201 32
6 2021-22 1,321 50,690 790 331 38
7 2022-23 1,618 51,391 840 402 71
8 2023-24 1,580 41,427 848 400 80

Total investment
Total GIA Released - Total number of Total number of
Total Land allotted for Committed -
S. No. Duration Cumulative (Rs. Land Allottees - Operational Units -
EMC - Cumulative (Acre) Cumulative (INR
Crore) Cumulative Cumulative
Crore)
1 Qtr-4 (2021-22) 1,321 50,690 789.76 331 38
2 Qtr-1 (2022-23) 1,342 50,690 799.94 342 40
3 Qtr-2 (2022-23) 1,393 60,554 809.57 364 44
4 Qtr-3 (2022-23) 1,393 57,739 834.34 362 51
5 Qtr-4 (2022-23) 1,618 51,391 840.43 402 71
6 Qtr-1 (2023-24) 1,580 41,427 847.93 400 80
Source: MeitY, HSIE Research

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EMC – Total investments committed

Source: MeitY, HSIE Research

EMC – Total land allotted EMC – Total number of operational units

Source: MeitY, HSIE Research Source: MeitY, HSIE Research

Electronics Manufacturing Clusters (EMC) 2.0 Scheme

EMC 2.0 Scheme was notified on 01.04.2020 to provide financial assistance for setting
up of both EMC projects and Common Facility Centers (CFCs) across the country. The
scheme is open for receipt of applications up to March 2024 with a disbursement period
up to March 2028. Under the scheme, 14 applications for setting up EMC projects
measuring an area of 4,108 acres with a proposed project cost of INR 5,708 crore
including Central Financial assistance of INR 2,757 crore have been received. 5
applications with a project cost of INR 2,219 crore including Central financial assistance
of INR 1,036 crore have been accorded approval.
Development of Semiconductors and Display Manufacturing Ecosystem in India
A total of 45 applications have been received under the Programme for Development
of Semiconductors and Display Manufacturing Ecosystem in India. This includes five
applications for setting up semiconductor Fabs in India, two applications for setting
up Display Fabs in India, nine applications for setting up compound and ATMP
facilities in India, and 29 applications for the Design Linked Incentive Scheme.

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Growth drivers for the Indian ESDM industry

The ESDM industry is growing at a rapid pace and there are several drivers which are
structural in nature and will keep the high growth momentum even in the long term.
India’s ecosystem is also evolving and many drivers are still at the initial stage of
evolution and as the operation levels grow, many more growth drivers will be added.
There are still high-end and value-added products/services which are not happening
in India and would start driving once the core foundations set up.
Growth drivers for ESDM industry

Cost
Competitive
ness Competitive
Lead time
Exports

Growth drivers
for ESDM Import
Export focus
Substitution
Industry

Enhancing
China +1
local value-
Strategy
Supply chain add
realignment

1. Domestic cost competitiveness in manufacturing

India has one of the lowest labour costs and overheads giving it a considerable
advantage over China and most of the other Southeast Asian countries. As per
the industry study, India’s wages are >40% cheaper than China's. Labour cost is
one of the key costs in manufacturing; thus, it provides a big headroom for cost
competitiveness in the global market. Thereby, investments in India are growing
and driving demand for ESDM.
2. Competitive exports
Cost competitiveness in domestic manufacturing in India contributes to the
growth of exports in electronics from the country. This is supported by favourable
policies such as the ASEAN-India Free Trade Agreement coupled with the
depreciating value of Indian Rupee (₹), which makes Indian exports competitive.
3. Import substitution
India is highly dependent on the import of electronics products, c.21% of India’s
electronic product demand is being contributed by imports. Such a high
dependency mix for fast-growing products is also alarming for India. Thereby,
import substation is critical for India, leading to high growth for ESDM.

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4. Enhancing local value-add

Sub-assembly modules and the finished goods assemblies are things that are
happening currently in India. Even though component manufacturing is
currently being dominated by China, Japan, and South Korea, India has
showcased strong potential in this part and is on the path to developing a strong
component manufacturing base.
5. Supply chain realignment
Local availability of components and chip fabrication are primary activities that
determine the strength of the electronics manufacturing ecosystem. India has a
very limited component supplier base; a majority of the high-value and critical
components are imported. Components that are predominantly imported include
ICs, PCBs, and other active components. As supply-chain resilience and
localization are becoming more significant, India has had to take the necessary
steps to improve the domestic value chain capability for long-term benefits. The
introduction of the PLI scheme to promote component sourcing and the relaxing
of FDI policies which would facilitate companies to set up bases in India are
allowing them to drive product development as well as research and
development.
6. China + 1 strategy
China’s rising cost structure along with the global need for diversification to
avoid any potential risk of product supply in adverse situations like COVID etc.
have created a need for China +1. China accounts for 13% of total global exports.
However, as a result of the China+1 strategy and the US-China trade dispute,
China is gradually losing its global partners. According to a recent global survey,
20-30% of industrial firms will leave China in the next few years. Around USD 4
trillion in manufacturing took place in China in 2020, and it is the world's largest
exporter and the US is its top importer, posing a huge challenge for the World
Trade Organization to regulate trade under its current rules and regulations.
7. Export focus on USD 5 trillion GDP
India is among the top growing economies and to sustain this outperformance,
the government is also emphasizing manufacturing. India has so far struggled to
tap the global demand for electronics products due to a variety of reasons i.e. low
investment, weak supply chain, more focus on assembly due to lack of
manufacturing capabilities, etc. However, incrementally manufacturing sector is
seeing more impetus. With a growing economy and large population, India can
tap the global demand for electronic products.
8. Component manufacturing/ lead time
Higher local sourcing of components will reduce the lead time of manufacturing
high-end products. Several critical components are being imported as of now
which is increasing the overall manufacturing process time and leading to higher
requirements for import planning.

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Peer comparison
Kaynes boasts of a well-diversified business profile with a portfolio having
applications across industry verticals ranging from CEA, Industrial, Telecom,
Aerospace & Defence, IT, and Medical to Railway. It has a higher B2B share with
industrials (37%)/automotive (33%) and railways (10%) contributing 80% of revenues.
India EMS player’s presence across various end-use industry
Mobile Aerospace &
Company CEA Automotive Industrial Telecom IT Medical Railway
Phones Defence
Kaynes  ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓

Avalon   ✓ ✓ ✓ ✓  ✓ ✓
Syrma SGS  ✓ ✓ ✓ ✓   ✓ 
Amber  ✓       ✓
Dixon ✓ ✓      ✓ 
Elin Electronics  ✓       
Bharat FIH ✓ ✓ ✓  ✓ ✓ ✓  
Sanmina-SCI   ✓ ✓ ✓ ✓ ✓ ✓ 
SFO Technologies   ✓ ✓ ✓ ✓  ✓ 
VVDN Technologies   ✓ ✓ ✓  ✓  
Source: Company, HSIE Research
Kaynes Technology – H1FY24 Revenue Mix (%) Syrma SGS – H1FY24 Revenue Mix (%)

Source: Company, HSIE Research Source: Company, HSIE Research

Cyient DLM – H1FY24 Revenue Mix (%) Avalon Technologies – H1FY24 Revenue Mix (%)

Source: Company, HSIE Research Source: Company, HSIE Research

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Kaynes Technology: Initiating Coverage

Kaynes has been one of the fastest-growing EMS players, recording

revenue/EBITDA/PAT of 45/60/104% over FY20-23. Syrma grew by 73% while
Avalon/Cyient saw revenue growth of 14/22%. During the same period, Kaynes’ order
book has grown c.6x. Given its diverse service offerings and industry tailwinds, we
believe Kaynes will continue to grow at a fast clip with its revenue/EBITDA/PAT
expected to grow by 42/42/53% over FY23-26E.
India EMS – Revenue CAGR India EMS –EBITDA CAGR

Source: Company, HSIE Research; *Bloomberg estimates Source: Company, HSIE Research; *Bloomberg estimates

India EMS – PAT CAGR India EMS – Order book

Source: Company, HSIE Research; *Bloomberg estimates Source: Company, HSIE Research

India EMS – Order book to bill (x) India EMS – Fixed Asset Turnover

Source: Company, HSIE Research Source: Company, HSIE Research

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Given its higher industrial mix (low volume high margin), presence across the value
chain, level of complexity and execution capabilities, Kaynes enjoys industry-leading
margins followed by Avalon and Cyient, all having a higher B2B mix. Given Syrma’s
higher B2C revenue mix, it has the lowest margins amongst its peers.
India EMS – Gross Margin % India EMS – EBITDA Margin %

Source: Company, HSIE Research Source: Company, HSIE Research

India EMS – PBT Margin % India EMS – PAT margin %

Source: Company, HSIE Research Source: Company, HSIE Research

India EMS – RoE % India EMS – RoCE %

Source: Company, HSIE Research Source: Company, HSIE Research

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Kaynes Technology: Initiating Coverage

With the absence of a local component manufacturing ecosystem, most of the raw
materials are imported. Moreover, given the large number of SKUs/components being
dealt with, there is a high requirement to stock sufficient inventory. This leads to higher
working capital requirements for all EMS players. Kaynes has one of the highest NWCs
at 135 days as of Mar’23. Here Syrma has the best working capital days cycle followed
by Cyient.

India EMS – Net Working Capital Days India EMS – Net Debt/ (Cash)

Source: Company, HSIE Research Source: Company, HSIE Research

India EMS – OCF India EMS – OCF/EBITDA %

Source: Company, HSIE Research Source: Company, HSIE Research

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Backward integration into OSAT

Government incentivizing development of semiconductor ecosystem
▪ GoI remains focused on building the overall semiconductor ecosystem, which in
turn will help catalyze India’s rapidly expanding electronics manufacturing and
innovation ecosystem. In its bid to do so, GoI has approved the Semicon India
programme with a total outlay of INR 760bn for the development of the
semiconductor and display manufacturing ecosystem in the country. Four
schemes have been introduced, which are:
1. Semiconductor fabs: Fiscal support of 50% of the project cost.
2. Display fabs: Fiscal support of 50% of the project cost.
3. Compound Semiconductors/ Silicon Photonics/ Sensor fabs/ ATMP/ OSAT:
Fiscal support of 50% of the capital expenditure.
4. Design-linked incentive: 50% of eligible expenditure subject to a ceiling of
INR 150mn per application. Deployment Linked Incentive of 4-6% of net sales
turnover over five years subject to a ceiling of INR 300mn per application.
▪ Development of a domestic component ecosystem will help (1) improve time to
market/lead time; (2) reduce component and logistics costs; (3) improve foreign
exchange savings; and (4) make electronic products more affordable.

Backward integration to provide strategic benefits to Kaynes

▪ Keeping in mind the larger opportunity at hand, Kaynes has taken baby steps by
getting into Outsourced Semiconductor Assembly and Test (OSAT) and bare PCB
manufacturing.
To backward integrate into OSAT and Bare PCB manufacturing

Source: Company
▪ In addition to GoI incentives, in order to promote manufacturing, certain states are
giving additional incentives. Kaynes has already signed MoUs with Telangana and
Karnataka state governments. Their first phase is expected to come up in
Telangana where they have acquired 46 acres of land near Hyderabad airport.

▪ In terms of project timelines, Kaynes expects to begin trial runs for the first line by
Apr’24 and begin commercial production by H2FY25. They are looking to install
12 lines by FY25. The total investment required is envisaged to be INR 28.5bn.

▪ Kaynes has entered into a technology tie-up with a Globetronics, a global OSAT/
ATMP player with over three decades of experience. Also, they have signed MOUs
with three customers already.

▪ The key challenge here remains the availability of skilled labour. Kaynes will look
to build up a team in India because currently only very low-end OSAT is being
done. In order to do that, they will bring in some expatriates who will come here,
train people, and build a team. This process can take one year.

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OSAT project execution plan

Source: Company
▪ In bare PCB manufacturing, rather than pursuing conventional (low margin) PCB,
Kaynes will focus on high-end PCBs (HDI, multi-layers) which are high margin.
Kaynes has been allotted 20 acres of land over which it will build a 25k sq.m facility
for a total investment of INR 14bn.

▪ Kaynes expects to deliver 18-20% EBITDAM on these businesses once they stabilise.

PCB project execution plan

Source: Company

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Valuation and recommendation

Kaynes registered revenue of INR 11bn in FY23 with 33% revenue CAGR during FY19-
23. Automotive remained a key contributor with c.38% mix followed by industrial at
27%, railways at 12%, consumer at 9%, medical at 6% and IOT at 6% respectively.
Kaynes clocked 10x improvement in its order book in the last 3 years. The company
has also de-risked its business model by diversified client/suppliers mix. We model
revenue/EBITDA/PAT CAGR of 42/42/53% over FY23-26E.
Besides traditional business, Kaynes has announced its forays into OSAT (phase-1 in
Telangana, proof of concept by Apr’24, phase-2 in Karnataka), benefits to begin from
FY25 onwards. Major benefits will be back ended but considering its potential to
achieve >INR 30bn revenue with c.18% EBITDA margin at full efficiency (with both
phases), we assign INR 23bn value in our SoTP (with discounting of 18%). We value
traditional business at 45x P/E on Dec-24 EPS and add INR 400/share value of OSAT
(link). We initiate coverage on Kaynes with BUY rating with TP of INR 2,850.
TP table
Valuation Dec-24
Traditional Business
EPS (Dec-24) 54.3
P/E (x) 45.0
Value per share 2,450
OSAT
Value of business 23,000
Value per share 400
Target Price 2,850
Implied P/E (x) 52.5
CMP 2,450
Up 16%

OSAT assumption, discounting and valuation

Particulars (INR mn) FY25E FY26E FY27E FY28E FY29E FY30E
Revenue 472 3,220 8,400 12,220 18,338 25,628
EBITDA (236) 225 1,008 1,833 3,301 4,613
EBITDAM -50% 7% 12% 15% 18% 18%
PBT (461) (321) (124) 267 1,140 2,148
ETR % 17% 17% 17% 17% 17% 17%
Tax - - (21) 45 194 365
PAT (461) (321) (103) 222 947 1,783
Toal investment 1,150 5,250 10,850 17,150 20,450 28,450
Asset Turns (x) 0.1 0.4 0.6 0.7 0.8
Kaynes investment 288 1,313 2,713 4,288 5,113 7,113

OSAT valuation
PAT (FY30E) 1,783
P/E (x) 30
Value (INR mn) 53,481
Disc rate (%) 18%
Disc value (INR mn) ₹ 23,000
Value per share ₹ 400

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India EMS – Earnings Summary

Revenue CAGR % EBITDA CAGR % PAT CAGR % RoE %
Company
FY20-23 FY23-26E FY20-23 FY23-26E FY20-23 FY23-26E FY23 FY24E FY25E FY26E
Kaynes 45.2 42.3 60.4 42.5 104.3 52.8 16 17 20 22
Amber* 20.0 18.1 10.6 25.1 -0.3 37.1 9 10 13 15
Dixon* 40.5 35.8 32.2 35.3 28.5 44.7 22 27 30 29
Avalon* 13.8 19.3 20.5 19.6 65.7 32.5 17 11 15 16
Cyient* 22.1 36.9 85.6 41.2 na 74.2 23 11 11 15
Elin* 11.0 9.5 5.5 16.5 -0.8 36.5 7 4 9 12
PG Electroplast* 49.4 26.6 64.0 24.1 209.4 42.2 22 18 19 21
Syrma SGS* 72.8 39.5 40.5 39.4 35.4 37.2 11 10 13 16
Source: Company, HSIE Research; *Bloomberg estimates

India EMS – Valuation Summary

Company P/E (x) EV/EBITDA (x) EV/Revenue (x)
FY23 FY24E FY25E FY26E FY23 FY24E FY25E FY26E FY23 FY24E FY25E FY26E
Kaynes 149.6 83.0 55.3 37.6 83.8 55.1 39.3 29.0 12.5 8.4 5.9 4.3
Amber* 70.0 53.7 35.8 27.2 29.1 22.4 18.0 14.9 1.8 1.5 1.3 1.1
Dixon* 122.7 77.6 53.8 41.1 62.2 43.6 31.7 25.1 2.6 1.8 1.3 1.0
Avalon* 51.7 45.8 30.1 23.5 27.8 29.3 20.7 16.3 3.3 3.0 2.4 2.0
Cyient* 83.2 80.4 44.2 30.1 61.1 45.3 30.2 21.7 6.5 4.6 3.3 2.5
Elin* 24.2 39.1 15.5 11.1 10.5 14.9 8.3 6.6 0.6 0.7 0.6 0.5
PG Electroplast* 66.6 48.3 34.3 27.3 35.1 27.8 21.7 18.4 2.9 2.2 1.7 1.4
Syrma SGS* 73.8 64.9 43.7 31.4 55.1 42.7 27.8 20.3 5.0 3.4 2.5 1.9
Source: Company, HSIE Research; *Bloomberg estimates

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Kaynes Technology: Initiating Coverage

Key Assumptions

Segmental Performance and Assumptions

Year End (March) FY20 FY21 FY22 FY23 FY24E FY25E FY26E
Automotive 747 1,004 2,370 4,279 5,777 7,221 8,665
YoY growth % 4 34 136 81 35 25 20
Industrial 1,178 1,394 2,119 3,041 5,929 8,893 12,006
YoY growth % 2 18 52 44 95 50 35
Aerospace, Defence & Others 200 135 212 225 541 811 1,095
YoY growth % 245 (32) 56 6 140 50 35
Medical 230 462 706 676 608 912 1,231
YoY growth % 48 101 53 (4) (10) 50 35
Railways 631 596 706 1,351 2,162 3,243 4,378
YoY growth % (33) (6) 18 91 60 50 35
IoT 403 247 353 676 709 1,277 2,682
YoY growth % 20 (39) 43 91 5 80 110
Consumer 293 368 565 1,014 1,064 1,596 2,394
YoY growth % 8 25 54 79 5 50 50
Total 3,682 4,206 7,032 11,261 16,790 23,954 32,452
YoY growth % 1 14 67 60 49 43 35
Revenue Mix %
Automotive 20 24 34 38 34 30 27
Industrial 32 33 30 27 35 37 37
Aerospace, Defence & Others 5 3 3 2 3 3 3
Medical 6 11 10 6 4 4 4
Railways 17 14 10 12 13 14 13
IoT 11 6 5 6 4 5 8
Consumer 8 9 8 9 6 7 7
Total 100 100 100 100 100 100 100

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Kaynes Technology: Initiating Coverage

Consolidated P&L
Year End (March) FY20 FY21 FY22 FY23 FY24E FY25E FY26E
Net Revenues 3,682 4,206 7,062 11,261 16,790 23,954 32,452
Growth (%) 1.1 14.2 67.9 59.4 49.1 42.7 35.5
Material Expenses 2,417 2,861 4,894 7,801 11,753 16,708 22,635
Employee Expense 415 459 602 771 1,007 1,497 2,028
Other Expenses 442 477 629 1,006 1,469 2,156 2,921
EBITDA 408 409 937 1,683 2,561 3,593 4,868
EBITDA Growth (%) 16.4 0.2 129.1 79.7 52.1 40.3 35.5
EBITDA Margin (%) 11.1 9.7 13.3 14.9 15.3 15.0 15.0
Depreciation 65 101 132 187 255 392 524
EBIT 343 308 805 1,496 2,306 3,202 4,344
Other Income (Including EO Items) 18 40 41 114 383 400 400
Interest 227 240 256 349 451 499 501
PBT 135 109 590 1,260 2,238 3,102 4,243
Total Tax 23 11 174 308 492 651 849
RPAT 112 97 417 952 1,745 2,451 3,394
Adjusted PAT 112 97 417 952 1,745 2,451 3,394
APAT Growth (%) 14.7 (12.8) 328.2 128.4 83.3 40.4 38.5
EPS 16.4 2.3 9.0 16.4 30.0 42.2 58.4
EPS Growth (%) 14.7 (85.7) 285.5 81.3 83.3 40.4 38.5

Consolidated Balance Sheet

Year End (March) FY20 FY21 FY22 FY23 FY24E FY25E FY26E
SOURCES OF FUNDS
Share Capital - Equity 68 79 465 581 581 581 581
Reserves 976 1,308 1,560 9,009 10,754 13,205 16,600
Total Shareholders Funds 1,044 1,387 2,026 9,590 11,336 13,787 17,181
Long Term Debt 98 171 293 150 150 150 150
Short Term Debt 1,125 1,224 1,403 1,209 2,500 2,500 2,500
Total Debt 1,223 1,395 1,695 1,359 2,650 2,650 2,650
Net Deferred Taxes 83 52 68 77 75 74 72
Other Non Current Liabilities 33 131 248 252 261 271 281
TOTAL SOURCES OF FUNDS 2,383 2,965 4,037 11,278 14,322 16,781 20,184
APPLICATION OF FUNDS
Net Block 502 649 820 1,072 1,567 2,876 2,852
Goodwill 23 23 23 23 23 23 23
CWIP 119 126 83 293 200 200 200
Intangible assets 45 127 290 221 221 221 221
Non Current Investments 16 17 15 33 34 36 38
Other Non Current Assets 80 59 129 236 236 236 236
Total Non-current Assets 786 1,002 1,361 1,879 2,283 3,593 3,571
Inventories 1,511 1,639 2,264 4,132 5,980 8,400 11,203
Debtors 950 1,217 1,977 2,271 3,220 4,463 6,046
Other Current Assets 350 193 407 1,046 1,563 2,098 2,753
Cash & Equivalents 123 143 216 4,860 5,613 4,410 4,988
Total Current Assets 2,934 3,192 4,864 12,308 16,376 19,371 24,990
Creditors 992 954 1,641 2,229 3,680 5,250 7,113
Other Current Liabilities & Provns 346 275 546 680 656 932 1,263
Total Current Liabilities 1,337 1,229 2,187 2,909 4,336 6,183 8,376
Net Current Assets 1,597 1,963 2,677 9,399 12,040 13,189 16,613
TOTAL APPLICATION OF FUNDS 2,383 2,965 4,037 11,278 14,322 16,781 20,184

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Kaynes Technology: Initiating Coverage

Consolidated Cash Flow

(Rs mn) FY20 FY21 FY22 FY23 FY24E FY25E FY26E
Reported PBT 135 109 590 1,260 2,238 3,102 4,243
Non-operating & EO Items 14 15 (2) (84) (2) (2) (2)
Interest Expenses 221 214 256 349 451 499 501
Depreciation 65 101 132 187 255 392 524
Working Capital Change (79) (138) (743) (1,626) (1,888) (2,352) (2,847)
Tax Paid (25) (45) (22) (503) (492) (651) (849)
OPERATING CASH FLOW ( a ) 331 256 211 (416) 561 988 1,570
Capex (208) (250) (422) (581) (657) (1,700) (500)
Free Cash Flow (FCF) 123 6 (211) (997) (95) (712) 1,070
Investments (3) 9 (23) (4,355) (2) (2) (2)
Non-operating Income - - - - - - -
INVESTING CASH FLOW ( b ) (211) (241) (445) (4,937) (658) (1,702) (502)
Debt Issuance/(Repaid) (117) (44) 301 (336) 1,301 10 10
Interest Expenses (221) (218) (256) (349) (451) (499) (501)
FCFE 227 181 345 (984) 1,656 (203) 1,581
Share Capital Issuance 0 270 228 6,229 - - -
Dividend - - - - - - -
Others - - - - - - -
FINANCING CASH FLOW ( c ) (337) 8 272 5,543 850 (489) (491)
NET CASH FLOW (a+b+c) (217) 23 38 191 753 (1,203) 577
EO Items, Others - - - - - - -
Closing Cash & Equivalents 123 143 216 4,860 5,613 4,410 4,988

Ratios
KEY RATIOS FY20 FY21 FY22 FY23 FY24E FY25E FY26E
PROFITABILITY (%)
GPM 34.4 32.0 30.7 30.7 30.0 30.3 30.3
EBITDA Margin (%) 11.1 9.7 13.3 14.9 15.3 15.0 15.0
EBIT Margin 9.3 7.3 11.4 13.3 13.7 13.4 13.4
PBT Margin 3.7 2.6 8.4 11.2 13.3 13.0 13.1
APAT Margin 3.0 2.3 5.9 8.5 10.4 10.2 10.5
RoE 11.3 8.0 24.4 16.4 16.7 19.5 21.9
RoIC (or Core RoCE) 12.6 10.9 17.1 22.1 23.8 24.0 25.2
RoCE 11.4 10.3 16.2 14.8 14.1 16.3 18.8
EFFICIENCY
Tax Rate (%) 17.2 10.5 29.4 24.5 22.0 21.0 20.0
Fixed Asset Turnover (x) 4.3 3.9 5.3 6.8 7.0 5.8 7.0
Inventory (days) 150 142 117 134 130 128 126
Debtors (days) 94 106 102 74 70 68 68
Other Current Assets (days) 35 17 21 34 34 32 31
Payables (days) 98 83 85 72 80 80 80
Other Current Liab & Provns (days) 34 24 28 22 14 14 14
Cash Conversion Cycle (days) 146 158 127 147 140 134 131
Net D/E (x) 1.1 0.9 0.7 (0.4) (0.3) (0.1) (0.1)
Interest Coverage (x) 1.5 1.3 3.1 4.3 5.1 6.4 8.7
PER SHARE DATA (Rs)
EPS 16.4 2.3 9.0 16.4 30.0 42.2 58.4
CEPS 26.0 4.8 11.9 19.6 34.4 48.9 67.4
Book Value 153.5 33.4 43.9 164.9 195.0 237.1 295.5
VALUATION
P/E (x) 149.3 1,046.0 271.4 149.6 81.6 58.1 42.0
P/BV (x) 16.0 73.4 55.8 14.9 12.6 10.3 8.3
EV/EBITDA (x) 43.5 252.0 122.3 82.6 54.5 39.2 28.8
EV/Revenues (x) 4.8 24.5 16.2 12.3 8.3 5.9 4.3
OCF/EV (%) 1.9 0.2 0.2 (0.3) 0.4 0.7 1.1
FCF/EV (%) 0.7 0.0 (0.2) (0.7) (0.1) (0.5) 0.8
FCFE/Mkt Cap (%) 1.4 0.2 0.3 (0.7) 1.2 (0.1) 1.1
Dividend Yield (%) - - - - - - -

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Kaynes Technology: Initiating Coverage

1 Yr Price History
Kaynes Technology
3000

2500

2000

1500

1000

500

0
May-23
Jan-23

Feb-23

Mar-23

Apr-23
Dec-22

Aug-23

Sep-23
Nov-22

Oct-23

Nov-23
Jun-23

Jul-23

Rating Criteria
BUY: >+15% return potential
ADD: +5% to +15% return potential
REDUCE: -10% to +5% return potential
SELL: >10% Downside return potential

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Kaynes Technology: Initiating Coverage

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