IPO Analysis: Kaynes Technology India limited

IPO Rating: Invest for long term

About the issue: 

Kaynes Technology is a leading end-to-end and IoT solutions-enabled integrated electronics manufacturing company. It is coming out with its initial public offering (IPO) of equity shares with a face value of Rs 10 per equity share. The price band of the issue has been fixed at Rs 559 to Rs 587 per equity share. The issue size is Rs 857.82 crore at a higher price band.   

The IPO opening date is November 10, 2022, and it will be closing on November 14, 2022. The issue is likely to be listed on the exchange on November 22, 2022. The IPO market lot size is 25 Shares and in multiple thereof. A retail-individual investor can apply up to a maximum of 13 lots (325 shares or Rs 190,775 at the upper price band). 

Objects of the Issue  

The company proposes to utilise the Net Proceeds towards funding the following objects:  

1. Repayment/prepayment, in full or part, of certain borrowings availed by the company.  

2. Funding capital expenditure towards the expansion of the existing manufacturing facility at Mysore, Karnataka, and near the existing manufacturing facility at Manesar, Haryana.  

3. Investment in the wholly owned Subsidiary, Kaynes Electronics Manufacturing Private Limited, for setting up a new facility at Chamarajanagar, Karnataka.  

4. Funding working capital requirements of the Company.  

5. General corporate purposes.  

Promoter holding   

The Pre issue shareholding is 79.78 per cent, Post the IPO the promoter stake will be 67.39 per cent.   

About the company  

Kaynes Technology India Ltd. (KTIL) is an end-to-end and IoT solutions-enabled integrated electronics manufacturing player, having capabilities across the entire spectrum of electronics system design and manufacturing ("ESDM") services. It has experience in providing 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"), Information Technology ("IT") and other segments.  

KTIL's business is classified based on the stage of services that it provides to customers. The company classifies its operations under the following business verticals:  

OEM - Turnkey Solutions - Box Build ("OEM - Box Build"): it 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") ("OEM - Turnkey Solutions"): It undertakes turnkey electronics manufacturing services of PCBAs, cable harnesses, magnetics, and plastics ranging from prototyping to product realization including mass manufacturing.  

ODM: KTIL offers ODM services in smart metering technology, smart street lighting, brushless DC ("BLDC") technology, inverter technology, gallium nitride-based charging technology, and providing IoT solutions for making smart consumer appliances or devices IoT connected.  

KTIL operates eight strategically located manufacturing facilities across India in the states of Karnataka, Haryana, Himachal Pradesh, Tamil Nadu, and Uttarakhand. Its facilities are located in proximity to customers, allowing it to service their requirements efficiently and cost-effectively. Certain manufacturing facilities are approved under the Electronics Hardware Technology Park Scheme of Software Technology Park of India, Bengaluru, and the 100 per cent Export Oriented Unit Scheme of Madras Export Processing Zone, Chennai, Tamilnadu offers incentives similar to a special economic zone.  

As of June 30, 2022, it had a combined capacity to assemble over 1,500 million (on an annualized basis) components for the period and have an exclusive line for 'Green Manufacturing' that is compliant with Directive 2002/95/EC Restriction of Hazardous Substances ("RoHS"). As of June 30, 2022, its manufacturing infrastructure also includes one design facility and two service centres.    

Financial   

On the financial performance front, for the last three fiscals, the company has (on a consolidated basis), posted turnover/net profits of Rs 370.17 crore/ Rs 9.36 crore (FY20), Rs 424.66 crore/ Rs 9.73 crore (FY21), and Rs 710.35 crore/Rs 41.68 crore (FY22). For Q1 of FY23 ended on June 30, 2022, it earned a net profit of Rs. 10.05 cr. on a turnover of Rs 199.98 crore. As per management, as of June 30, 2022, they had an order book worth Rs 2266 crore plus.  

For the last three fiscals, it has reported an average EPS of Rs 5.57 and an average Return on a net worth of 14.21 per cent.   

Valuation and Outlook 

The topline of the company is growing at a 3-year CAGR of 24 per cent and its bottom line is growing at a 3-year CAGR of 64 per cent. The company has shown good improvement in FY22 financial performance. The profitability margins of the company are also improving. Currently, the debt-to-equity ratio of the company is 0.8x.  

KTIL has created a niche place in the segment and has good orders on hand. Based on its current financials though the issue appears fully priced, considering future prospects, well-informed investors may consider parking funds with medium to long-term perspectives.  

The issue is priced at a P/BV of 12.96x based on its NAV of Rs 45.30 as of June 30, 2022, and at a P/BV of 3.91x based on its post-IPO NAV of Rs 149.98 at the upper cap. If we annualize its FY23 earnings and attribute it to post-IPO paid-up capital, then the asking price is at a P/E of around 84.95x. Due to increasing profitability, a healthy order book and strong financials we recommend investors to invest for the long term in this IPO.   

1 comments on article "IPO Analysis: Kaynes Technology India limited"

Swapan Chakraborty

Good

11/10/2022 5:03 PM

Please login or register to post comments.