Shortage of semiconductors, weakening of rupee and pre-IPO margin flare-up weighs against the valuation.
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KAYNES TECHNOLOGY OFFER AT A GLANCE |
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| Offer Type | Book Built |
| Platform | Main Frame |
| Fresh Issue | Rs 530 Cr (90,28,961 shares) |
| Offer for Sale | 55,84,664 shares (Rs 327 Cr) |
| Face Value | Rs 10 |
| Price Band | Rs 559 – 587 |
| Market/Bid Lot | 25 Nos. |
| Implied M-Cap | Rs 3,412 Cr (at cap price) |
| Implied Eq-Cap | Rs 58.14 Cr |
| Implied Free Float | 36.19% |
| Lead Manager | Dam Capital and IIFL Securities |
| Registrar | Link Intime |
| Listing At | BSE, NSE |
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INDICATIVE ISSUE SCHEDULE |
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| Opening :10-Nov-2022 | Closing :14-Nov-2022 |
| Allotment :17-Nov-2022 | Refunding :18-Nov-2022 |
| Demat Credit:21-Nov-2022 | Trading :22-Nov-2022 |
The Offer
The Mysuru-registered Kaynes Technology India Ltd (KTIL) is entering the capital market with an initial public offer of Rs 857.82 Cr which translates into 1,46,13,625 equity shares at the cap price. The offer consists of a fresh issue of Rs 530 Cr (90,28,961 equity shares) from the company and an `Offer for Sale’ of 55,84,664 shares (Rs 327.82 Cr) from the main promoter Ramesh Kunhikannan ((20,84,664 shares) and an investor-shareholder, Freny Firoze Irani (35,00,000 shares). The offer is being made through the book-building route with a price band of Rs 559-587 for Rs 10 paid-up share.
Applicants should bid for a minimum lot of 25 shares and multiples thereof. The shares are proposed to be listed on the main frame of BSE & NSE on Tuesday, November 22, 2022. DAM Capital and IIFL Securities have been roped in as book running lead managers to the offer and Link Intime is the registrar to the issue. The bidding opens on Thursday, November 10 and closes on Monday, November 14, 2022.
The company proposes to utilise the proceeds from the fresh issue towards repayment of loans (Rs 130 Cr); expansion of its existing manufacturing facility in Mysuru and Manesar, Haryana (Rs 98.93 Cr); investment in wholly owned Subsidiary, Kaynes Electronics Manufacturing Private Ltd, for setting up a new facility at Chamarajanagar, Karnataka (Rs 149.30 Cr); working capital requirements (Rs 114.74 Cr) and general corporate purposes.
Lineage
Though KTIL was incorporated only in the year 2008 by Ramesh Kunhikannan and his spouse, the genesis of its business dates back 20 years earlier. The promoter set up a manufacturing enterprise as a proprietary firm in the name of Kaynes Technology in the year 1988. The firm obtained ISO 9001:2000-certification for printed circuit board assemblies and electronic manufacturing services in 1995.
It received approval for setting up of 100% hardware export oriented unit under the electronic hardware technology park scheme of government of India for manufacture of populated printed circuit boards in 2000 and commenced its export-operations in 2001. In 2004 it set up a new unit in Himachal Pradesh for resale of printed circuits board assemblies. In 2006 it established a manufacturing facility (micro enterprise) in Uttarakhand and same year it entered into a memorandum of understanding with NS-SBU Bharat Electronics Ltd, Bengaluru, for contract manufacturing of PCB assemblies, modules and sub-units.
Immediately after its incorporation, KTIL took over proprietary firm of the promoter in 2008. It established a unit in Chennai in 2009 for undertaking services related to solenoids, electromagnetic relays, inductors, transformers and electro mechanical parts and expanded its customer base in Europe. The company established its Bengaluru unit in 2010 and set up a manufacturing facility in Mysuru in 2012 and commenced exports to Australia and Malaysia in the year 2013.
The company established a manufacturing facility in Manesar, Gurugram in 2016 and entered into collaboration with Qualcomm Technologies for design and manufacturing of software tools and hardware tools for various devices. Having achieved considerable growth in aerospace, defence, power electronics, KTIL expanded its operations into consumer electronics in 2021. Recently the company claims to have received approval under the Production Linked Incentive Scheme for manufacturing of White Goods (Air Conditioner and LED Lights).
Key Management
Promoter Ramesh Kunhikannan (58) is the Managing Director of the company. He holds a bachelor’s degree in electrical engineering and has over 33 years of experience in the electronic manufacturing services industry. His spouse and co-promoter Savitha Ramesh (50) is the Chairperson and Whole-time Director of the company. She holds a bachelor’s degree in commerce and has over 25 years of experience in electronic manufacturing services industry. She is responsible for the overall implementation of the manufacturing process and controls compliant with different standard across the company.
Jairam Paravastu Sampath (57) is a Whole-time Director and Chief Financial Officer of the company. He has been associated with KTIL since 2011. He holds a bachelor of technology degree in mechanical engineering from the Indian Institute of Technology Madras and a post graduate diploma in management from the Indian Institute of Management, Ahmedabad. He has over 30 years of experience in manufacturing, operations, sales and marketing having associated in the past with iPath Technologies, Hindustan Motors, TVS Electronics, Sundaram-Clayton, etc.
Rajesh Sharma is the Chief Executive Officer of the company since December 20, 2021. He holds a bachelor’s degree in commerce from Bangalore University. He is also an associate member of the Institute of Chartered Accountants of India. He has over 15 years of experience in accounting and finance. He was previously associated with the Syngene International as the vice-president, Allergan India as director-finance, Cryo Save (India) as the managing director, etc.
Interestingly, the company’s CFO is having engineering background while the CEO has finance background. A disturbing aspect is that the previous CFO resigned within four months of joining the company.
Stakeholders
Of the pre-IPO equity capital of Rs 4.91 Cr, the promoters have as much as 79.78% and investor-selling shareholder, Freny Firoze Irani, holds 10.79%. Post IPO the promoters will hold 63.81% at a negative cost about Rs 32 per share. Freny Firoze Irani will hold 3.09% at a negative cost of over Rs 924! Hence, one can expect some selling pressure after the lock-in period of six months.
Business Track
KTIL presents itself as an integrated electronics manufacturer having capabilities across the entire spectrum of electronics system design and manufacturing services. It provides 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 (IoT) and Information Technology.
The company’s manufacturing facilities are located at Parwanoo (Himachal Pradesh), Selaqui (Uttarakhand), Manesar (Haryana), Mysuru (Karnataka), Bengaluru (Karnataka) and Chennai (Tamil Nadu). The company has one design facility at Bengaluru, two service centres located at Kochi and Navi Mumbai and one packing and dispatch facility at Mysuru.
KTIL manufactures complex box builds, sub-systems and products across various industry verticals. It also undertakes turnkey electronics manufacturing services of Printed Circuit Board Assemblies, cable harness, magnetics and plastics ranging from prototyping to product realization including mass manufacturing.
It offers ODM (Original Design Manufacturing) services in smart metering technology, smart street lighting, brush less DC technology, inverter technology, gallium nitride based charging technology and providing IoT solutions for making smart consumer appliances or devices IoT connected. Under Product Engineering and IoT Solutions, it also offers conceptual design and product engineering services in industrial and consumer segments.
Financial Track
Having posted a flat performance for three years between 2019 and 2021, KTIL put up an excellent show in fiscal 2022 that is on the eve of the public issue. Whereas revenue increased 68%, net profit zoomed 342%! Operating margin, which was on the decline in 2021, surged 350 basis points in 2022. The company’s equity capital has bulged from Rs 7 Cr to Rs 49 Cr in 2022 due a bumper 5:1 bonus issue and conversion of CCPS.
| Kaynes Technology Consolidated Financials (in Cr) | |||||
| Period Ended |
Jun-22 |
Mar-22 | Mar-21 | Mar-20 |
Mar-19 |
| Months |
3 |
12 | 12 | 12 |
12 |
| Revenue |
200 |
707 | 422 | 369 |
365 |
| Operating Profit |
26 |
95 | 42 | 44 |
37 |
| OPM% |
12.8 |
13.4 | 9.9 | 12 |
10.3 |
| Other Income |
0 |
3 | 3 | 1 |
1 |
| EBIDTA |
26 |
98 | 45 | 45 |
39 |
| EBIDTA % |
12.8 |
13.8 | 10.6 | 12.1 |
10.6 |
| Interest |
7 |
26 | 24 | 24 |
19 |
| Depreciation |
5 |
13 | 10 | 8 |
5 |
| Tax |
3 |
15 | 4 | 2 |
3 |
| Net Profit |
10 |
41 | 9 | 9 |
10 |
| Equity (Implied) |
58 |
46 | 7 | 7 |
7 |
| Reserves (Implied) |
815 |
156 | 131 | 96 |
86 |
| Borrowing |
186 |
170 | 139 | 144 |
156 |
| Fixed Assets |
122 |
119 | 90 | 75 |
53 |
Valuation
Stocks in the electronics manufacturing services domain are currently enjoying high discounting though many of them are yet to join the dividend list. However, being a low-margin industry, such high valuations are unlikely to hold for long. In KTIL’s case, if the company maintains its fiscal 2022 growth tempo in the current year, the P/E multiple of 65 would be justified. On the contrary, if the fiscal 2022 performance was a pre-IPO bloom, the valuations are bound to crash.
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HOW KAYNES TECH COMPARES WITH LISTED PEERS |
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Financials |
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| (Amount in Cr) |
Kaynes Tech |
Dixon Tech | Amber Enter |
SYRMA SGS |
| Market Cap |
2709 |
26885 | 6782 |
5085 |
| Borrowing |
170 |
458 | 1032 |
194 |
| Fixed Assets |
119 |
995 | 1488 |
300 |
| Revenue |
707 |
10697 | 4206 |
1020 |
| Other Income |
3 |
4 | 33 |
13 |
| EBIDTA |
98 |
383 | 309 |
107 |
| Interest |
26 |
44 | 46 |
7 |
| Net Profit |
42 |
191 | 111 |
54 |
| Equity Cap |
58 |
12 | 34 |
176 |
| Reserves |
815 |
985 | 1701 |
1272 |
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Stock Features |
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| Current Price (Rs) |
587 |
4530 | 2013 |
289 |
| Face Value (Rs) |
10 |
2 | 10 |
10 |
| Book Value |
150 |
168 | 515 |
82 |
| Promoter Stake % |
63.8 |
34.3 | 40.3 |
47.4 |
| Debt/Equity |
0.2 |
0.5 | 0.6 |
0.1 |
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Profitability |
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| OPM % |
13.4 |
3.5 | 6.6 |
9.3 |
| Net Margin % |
5.9 |
1.8 | 2.6 |
5.2 |
| Cash EPS |
11.88 |
46.20 | 64.42 |
4.11 |
| Earnings Per Share |
9.03 |
32.05 | 32.39 |
3.01 |
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Return |
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| RONW % |
19.6 |
19.1 | 6.4 |
9.5 |
| ROCE % |
22.2 |
20.6 | 7.3 |
11.4 |
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Discounting |
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| Price/Earnings |
65.0 |
141.3 | 62.1 |
95.9 |
| Price/Cash EPS |
49.4 |
98.1 | 31.2 |
70.2 |
| Price/Book Value |
12.8 |
27.0 | 3.9 |
3.5 |
| Price/EBIDTA |
27.7 |
70.2 | 22.0 |
47.5 |
| Price/Revenue |
3.8 |
2.5 | 1.6 |
5.0 |
| Price/Fixed Assets |
22.7 |
27.0 | 4.6 |
16.9 |
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Distribution |
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| Dividend % |
0 |
100 | 0 |
0 |
| Yield % |
0 |
0 | 0 |
0 |
| Pay-out % |
0 |
6.2 | 0 |
0 |
Concerns
- The company is dependent on the constant supply of semiconductors from overseas market for manufacturing of its products. The imported raw materials accounted for 64.46% of its total purchases of raw materials in fiscal 2022. Shortage or issues in timely availability of semiconductors or fluctuations in the exchange rate will have an adverse impact on the financial performance.
- The management’s corporate governance record is also much to be desired. Auditors had observed that some of the statutory dues, mainly PF and ESI contributions, were outstanding for more than six months in fiscal 2021. Further, there had been delays with respect to payment towards advance income tax for the fiscal 2021, tax deducted at source for fiscal 2019, 2020 and 2021 and in filing of Goods and Services Tax returns.
- Also, KTIL had instances of non-compliances, including with respect to certain regulatory filings for corporate actions taken by the company in the past.