One of the key foundations supporting the Indian technology industrial sector is the Indian Electronics Industry. Electronic parts are vital to many sectors, including mobile phones, LED lighting, PCBAs, consumer electronics, IT hardware, and autos. Consumer electronics, automotive, medical, and defense industries are the main drivers of the need for electronics components in India.
Electronic components are expected to grow in size as industry demands for more accurate parts increase. These sectors include automotive, aviation, telecommunications, entertainment, healthcare, and consumer durables.
In this article, we will explore the company’s business model, financial performance, growth drivers, and future outlook.
Industry Overview
India is expected to become $1 trillion by FY26 in Electronics System Design & Manufacturing (ESDM). India’s electronics sector is one of the world’s largest in terms of consumption and is experiencing rapid growth. The value of electronics produced in India has increased from $37 billion in 2016 to $105 billion in 2023, which is 3% of India’s GDP.
The sector is expected to continue to grow, with the consumer electronics market alone projected to reach $149.1 billion by 2033. India is a developing country in the world. In the electronics industry, India is the 5th largest electronic export commodity group as of March 2024. Currently, the electronics market in India is valued at $155 billion, with domestic production accounting for 65%.
Technology transitions such as the rollout of 5G networks and IoT are driving the accelerated adoption of electronics products. India’s semiconductor market is expanding. With a compound annual growth rate (CAGR) of 20%, it will boost revenues in electronics segments in mobile phones, laptops, and micro ovens.
During June 2024, electronic goods exports were recorded at $2.82 billion as compared to $2.42 billion during June 2023, registering a growth of 16.91%
Company Overview Of Kaynes Tech
Kaynes Technology was established as a manufacturing enterprise in 1988. Its headquarters are located in Mysore, India. They provide end-to-end and IoT-enabled integrated electronics, having capabilities in the entire electronics spectrum in design and manufacturing. Kaynes has 3 decades of experience in conceptual design, process engineering, and life-cycle support. They cover a total of 2,50,000 sq. ft. of infrastructure in India across seven cities.
The company caters to industries that include automotive, aerospace, railways, IoT/IT, and medical equipment. Kaynes has served 360+ customers in 28+ countries, including marquee MNCs. They have 9 advanced manufacturing facilities to undertake high-mix and high-value products with variable or flexible volumes.
Kaynes Technology has strong research & development capabilities to support clients across the value chain. They can address the low-volume and high-value segments with everlasting relationships with global and domestic customers and can handle projects with various levels of complexity.
Business Segment
OEM (Original Equipment Manufacturer) Turnkey/Box Build: In this segment, the company offers customized manufacturing lines with in-house facilities for manufacturing cable forms and harnesses, plastic molding, and burn-in/spray-test facilities.
OEM, Turnkey, PCBA: The company builds customized designs of testing hardware for a wide range of automated test equipment and functional testers, right from firmware flashing fixtures, PCBA fixtures, end-of-line testers, and product functional testers. Our OEM products are shipped directly to the warehouses of our customers.
Original Design Manufacturer (ODM): The company was the first in India to offer design-led electronics manufacturing to OEMs using embedded design capabilities. ODM solutions provide smart devices, IoT solutions, brushless drive technology, and gallium nitride technology.
IoT & IT, Cons, and Other: IoT smart systems incorporate a combination of sensors, microprocessors, software, and connectivity technology. IoT solutions deal in cloud platform-based services, hardware, and software accelerators.
Competitive Advantages Of Kaynes Tech
Diversified Business Profile
The revenues are obtained across geographies in India, North America, Europe, Southeast Asia, and others. Almost 90% of the revenue is generated from India, 5% of the revenue is from Europe, 3% of the revenue is from North America, 1% of the revenue is from Southeast Asia, and the remaining 1% is from others.
Working Capital Improvements
Every company desires to have low working capital numbers. These numbers show the company’s efficiency in the sale of products and services on time. Inventory days dropped from 104 days to 97 days YoY, Receivable Days dropped from 69 days to 59 days YoY, and Payable Days were unchanged at 73 days YoY.
The company is aiming to further bring down the net working capital from 83 days to 70 days by FY25. As the company realized that they have been working on low-volume and high-mix segments, they are probably to come around 70–72 days into FY25.
Manufacturing Facilities
Kaynes Technology has manufacturing centers across India with 3 classified divisions: a design facility, a service center, and a manufacturing facility. It has two design facility centers, one in Bengaluru and another in Ahmedabad. Two service centers in Kochi and Navi Mumbai; and manufacturing facilities: two units in Mysore, two units in Bengaluru, two units in Manesar, one in Chamrajanagar, one in Parwanoo, and one in Chennai.
A Diverse Product Portfolio
Automobile: PCBA Cluster, LED Position Lamp, LED Headlamp, LED Tail Lamp, and DRL PCBA, PCBA1 switches, PCBA for BCU Master and BCU Slave.
Commercial & Industrial: Panel for Engine Control, Controller for Streetlights, BLE Unit, Accurate Strain Gauge, and Bridge.
Trains: UM71: Recipient, ETCS workstation, SDTC workstation, and File for SDTC Cards.
Health care: X-ray machines and X-rays, unit controllers, clinical chemistry, and protein analyzers.
Electronics for aerospace, space, and strategy: HH Sonar, Crucial Products for Missions II, ESAF, Assemblies of ATE, and LRU cables.
Cons of IoT/IT: RFID gateway with a barcode scanner, gateway for asset condition monitoring and PLC, and industrial tablet & HMI reader for industry.
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Financial Highlights Of Kaynes Tech
We can see from the following table that Kaynes Technology’s financials have been moving in an upward direction. The reason for their revenue growing significantly is having a strong order book with ₹ 4,115 crores from their customers in FY24. In addition to that, they also have a diversified product portfolio and strong management.
Kaynes Technologies saw its revenues grow at a 4-year CAGR of 49%, and at the same time, net profit grew at a 4-year CAGR of 112%. On average, the operating margin is 13%, the return on equity is 14%, and the return on capital employed is 15%.
Kaynes Technology’s revenue growth can be attributed to several factors, including enhanced marketing optimization, the acquisition of new clients, heightened productivity, stringent cost-cutting measures implemented in FY22, and focused efforts across multiple domains in FY23, including supply chain management, business development, and operations. And management decisions based on client needs, which resulted in more orders to bag from their clients in FY24.
| Financial Year | 2020 (Mar) | 2021 (Mar) | 2022 (Mar) | 2023 (Mar) | 2024 (Mar) | 4 year CAGR |
|---|---|---|---|---|---|---|
| Revenue (Crores) | 368 | 421 | 706 | 1,126 | 1,805 | 48.82% |
| Net Profit (Crores) | 9 | 10 | 42 | 95 | 183 | 112.35% |
| Operating Profit Margin (%) | 12% | 10% | 13% | 15% | 14% | 13% |
| Return on Capital Employed (%) | 14% | 13.19% | 25.20% | 21.46%% | 7.37% | 15% |
| Return on Equity (%) | 9% | 8% | 25% | 16% | 11% | 14% |
Order Book
From the above table, we can see that the company has been receiving multiple order over the years. The order book surged from ₹3,789 crores at the end of Q3 FY’2024 to ₹4,115.2 crores at the end of Q4 FY’24.
The average order inflow per month increased from ₹278.8 crores per month in Q3 FY’24 to ₹321.2 crores during Q4 FY’2023. The company won a large order from CDAC and a substantially large order in aerospace outer space that would improve the overall revenue portfolio over the years, and more proposals are coming to fruition in the area too.
Performance Comparison With Index
When comparing Kaynes Technology to the Nifty Consumer Durables Index over three different periods—one month, six months, and a year—we find that Kaynes Technology did remarkable. Then the figures: The 1-year return was 125.62% Kaynes against 53.90% with index, the 6-month return was 42.88% Kaynes vs. 26.80% with index, and the 1-month return with Kayne’s technology was 4.79% and 1.47% with index.
Future Outlook Of Kaynes Tech
- Kaynes Tech is confident in achieving its goal of reaching a billion-dollar revenue by FY’28.
- They are optimistic about sustaining growth momentum in the next 3–5 years.
- Kaynes Technology is expecting to grow in the medical segment with triple-digit numbers in FY’25.
- The company is focusing on emerging segments in EMS, including electric vehicles (EVs), both four-wheelers & two-wheelers.
- Kaynes Tech is setting up manufacturing facilities in Kongara Kalan, Telangana, and is currently working on an implementation strategy for a PCB fabrication plant in Mysore, Karnataka, which would produce high-tech HDI PCBs.
- The company is upgrading the existing facilities in Mysore Units 1 & 2, Manesar, Bangalore, and Chennai.
- The company’s work is going full swing phase-wise in operationalization, ongoing: Alpha & Beta Blocks are ready, and Gamma Block is getting ready.
Key metrics Of competitors
| Metrics | Kaynes Tech | Amber Enterprises | Genus Power | PG Electroplast |
|---|---|---|---|---|
| Market Capitalisation (TTM) | ₹ 25,863 Cr | ₹ 14,161 Cr | ₹ 11,141 Cr | ₹ 9,699.26 |
| Price to Earnings Ratio (TTM) | 205.09 | 105.73 | 128.7 | 71.89 |
| Book Value (TTM) | ₹ 379.98 | ₹ 612.68 | ₹ 51.81 | ₹ 39.78 |
| Dividend Yield % (TTM) | 0.00% | 0.00% | 0.00% | 0.05% |
| ROCE (TTM) | 7.91% | 9.22% | 8.82% | 15.35% |
| Debt to Equity Ratio (TTM) | 0.11 | 0.75 | 0.37 | 0.42 |
| Promoter Holdings | 57.83% | 40.31% | 42.66% | 53.56% |
| FII Holdings | 14.27% | 25.98% | 17.91% | 11.07% |
Conclusion
As we are nearing the end, we conclude that Kaynes Technology has a significant order book and a diversified product portfolio, and management also discussed that they have a few more proposals in the coming years that have the potential to increase revenues.
As management disclosed, they have aimed to reduce net working capital from 83 days to 70 days by FY25, which every company desires and is a positive outlook for investors. Revenues grew by 60% YoY, and net profit grew by 93% YoY. The company has grown at a strong CAGR in revenue and profit.
So, we can assume that Kaynes Technology can grow at a CAGR of 60% for the next 2 years. What do you think about the business segment that will be beneficial for the future growth of Kaynes Technology Ltd.? Let us know in the comments below.
Written by Shashi
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