Kaynes Technology India IPO Fundamental Analysis (Subscribe)

Kaynes Technology provides IoT solutions enabled integrated electronics manufacturing player, having capabilities across the entire spectrum of electronics system design and manufacturing (ESDM) services.

It provides services relating to conceptual design, process engineering, integrated manufacturing, and life-cycle support for major players in the automotive, industrial, aerospace, defence, outer space, nuclear, medical, railways, Internet of Things, Information Technology, and other segments. The automotive sector contributed 41% of revenues followed by industrials which contributed 27% (Q1FY23). Top 10 customers contributed 63% of total revenue from operations in Q1FY23. Exports contributed 13% of total revenue from operations.

The Issuer’s operations are classified under the following business verticals:

OEM – Turnkey Solutions – Box Build: The Issuer undertakes “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 (PCBAs) – This vertical generates 67% of total revenues. It undertakes turnkey electronics manufacturing services of PCBAs, cable harnesses, magnetics, and plastics ranging from prototyping to product realization including mass manufacturing.
ODM: It offers ODM services in smart metering technology, smart street lighting, brushless DC technology, inverter technology, and gallium nitride-based charging technology and provides IoT solutions for making smart consumer appliances or devices IoT-connected.
Product Engineering and IoT Solutions: It offers conceptual design and product engineering services in industrial and consumer segments. Services include PCB cladding or electrical schematics to embedded design and submitting proof of concept to prototyping. The Issuer also offers connected product engineering and solutions. It has a portfolio of hardware, software accelerators, and proprietary sensors along with cloud platform-based service and solution offerings in asset tracking, remote device management, and smart product development.

Digital engineering offerings leverage the latest technologies including IoT, big data, machine learning, cloud, and media to improve customers’ efficiency. It also provides end-to-end IoT and cloud enablement solutions and offers IoT data and analytics platforms and vertical IoT solutions.

The Issuer currently operates eight manufacturing facilities located at Parwanoo, Himachal Pradesh; Selaqui, Uttarakhand, Manesar, Haryana; Mysuru, Karnataka; Bengaluru, Karnataka; and Chennai, Tamil Nadu, one design facility located at Bengaluru, Karnataka, two service centers located at Kochi, Kerala and Navi Mumbai, Maharashtra, and one packing and dispatch facility at Mysuru, Karnataka.

The Issuer has a large customer base diversified across verticals and geographies. Q1FY23, it served 229 customers in 21 countries globally and multiple industry verticals such as automotive, aerospace and defence, industrial, railways, medical, and IT / ITES.

Promoter and Managing Director- Ramesh Kunhikannan, started Kaynes Technology as a sole proprietorship in 1989.

Kaynes Technology IPO Financial Review

The top line of the Issuer is showing an increasing trend but the profitability margins are showing a volatile trend.

Kaynesposted total revenues of Rs 200 crore in Q1FY23 and a PAT of Rs 10.05 crore for the same period. For FY22, income from operations increased by 67% to Rs 706 crore from Rs 420 crore in FY21. An increase in revenues leads to rising in PAT to Rs 41.68 crore in FY22 as against Rs 9.73 crore during FY21. Revenues for FY21 first half were affected due to the pandemic. Profitability margins have been volatile for the last three fiscals and also reduced slightly in Q1FY23 when compared to FY22 margins. The management highlighted that the second half of the year is more active (sales are highest in the last quarter). The margins can be seen in the table below.

The net cash flow from the operation has been negative for Q1FY23 at -7.11 crore

Debt is 0.88x of equity as on 30th June 2023 and remained at 0.84 (FY22) and was above 1 for FY20 and FY19. Hence the Issuer appears to be leveraged at a higher side.

Table 1 - Financials and Ratios (Amount in Rs Crore)
Particulars	Q1FY2023	FY2022	FY2021	FY2020
Total Revenue	199.98	710.35	424.66	370.17
Revenue from Operations	199.27	706.25	420.63	368.24
PAT	10.05	41.68	9.73	9.36
EBITDA	24.57	93.67	40.89	41.33
Total Assets	763.26	622.42	419.37	378.12
Net Cash from operating activities	-7.11	21.11	27.73	45.25
EBITDA Margin	12.33%	13.26%	9.72%	11.22%
Net Margin	5.03%	9.81%	2.63%	2.48%

Kaynes IPO Valuation and Peer Comparison

The IPOis priced at 68.57x with annualized EPS of 8.56 for Q1FY23 calculated at the upper price band of Rs 587. P/E is 60.52x when calculated with FY22 earnings of 9.70 per share. When compared to the peers P/E, the Issue appears to be fully priced. Syrma, Dixon and Amber are the peers of the Issuer.

Table 2 - Listed Peer Comparison
Parameters	Syrma SGS	Dixon Technologies	Amber	Kaynes Technology
Face Value per share	10	2	10	10
Revenue from operations (FY22 INR Crore)	1284.37	10700.90	4239.63	710.4
EPS	5.25	32.31	32.41	9.7
NAV per share	51.20	169.30	526.2	43.12
Return on net worth	13.58%	21.90%	6.42%	20.54%
P/E	63.56	117.29	53.06	NA
Debt to Equity	0.35	0.46	0.59	0.84
CMP (9 Nov 22)	287.4	4592	2020	NA

Issue Details

Kaynes TechnologyIPO opens on 10th Nov- 14th Nov 2022 with a price band of 559-587 per share. The retail quota is 35% and investors can apply with a minimum bid of 25 shares (Rs 14,675). The maximum lot size is 325 shares (Rs 1,90,775). Net proceeds would be utilized towards repayment of borrowings (Rs 130 crore), funding Capex (Rs 98.93 crore), investment in subsidiaries (Rs 149.30 crore), funding working capital (Rs 114.74 crore), and other corporate expenses.

The issue is a fresh issue (Rs 530 crore) and offers for sale (Rs 327.82 cr) by the promoter, Mr.Ramesh Kunhikannan, and investor shareholder; Mr. Freny Firoze Irani. Promoter shareholding post-IPO would come down to 67.39% from 79.78%. The issue is expected to list on 22nd Nov 2022.

Conclusion and Investment Strategy

Kaynes Technology is an end-to-end and IoT solutions-enabled integrated electronics manufacturing player, having capabilities across the spectrum of ESDM services. It provides services in diversified sectors like aerospace, railways, automotive, and others.

The Issuer’s financial profile is reasonable and it has growth plans to expand with the IPO proceeds. Kaynes has created its space and has ordered books worth Rs. 2266 crore. The Ministry of Commerce and Industry also approved its application under the PLI – Whitegoods Scheme for Manufacturing of Specified Products at the Manesar plant on June 28, 2022. Valuations also appear to be fair Hence one shall Apply to this IPO.

Reviewer recommends Subscribe to the issue.

Review By CA Priyanka Choudhary on 2nd Nov 2022

Review Author

About CA Priyanka Choudhary

CA Priyanka Choudhary, a freelance chartered accountant

Priyanka Choudhary Jain is a Chartered Accountant and an experienced credit analyst. She has worked with CRISIL as Senior Credit Analyst on ratings assignments including business and financial analysis in Corporates as well as the Public Finance Sector.

Email: [email protected]

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