Embracing change; elevating excellence!
Kaynes Technologies (KAYNES) is one of the fastest-growing EMS companies in India, with diversified exposure to end-user industries across seven high-growth sectors. With ~62% revenue CAGR over FY21-24, the company is deepening its presence within existing sectors. Further, KAYNES continues to improve its margin profile (~15% in FY25E from ~9.7% in FY21) backed by a rising share of high-margin businesses.
KAYNES is likely to maintain its robust revenue growth trajectory in FY25 (up 67% YoY) and is confident of sustaining this high growth going forward, fueled by the contributions from new and upcoming segments, such as smart meters (~INR615b domestic TAM along with export opportunities), Aerospace, and Kavach (targets ~INR20b revenue over the next 4-5 years), et al.
In addition, KAYNES’ backward integration initiative for OSAT/PCB manufacturing is on track, boosting overall growth (likely to contribute ~17%/6% of its FY28 revenue) and margin profile (EBITDAM of ~25%/27% at optimum utilization).
These new businesses will bring in additional benefits, including improved operational efficiency, lower dependency on third-party suppliers, reduced lead times, and the ability to capture higher wallet share.
To sustain high long-term growth, KAYNES is eyeing the export and international markets (through recent acquisitions). We project exports to reach 20%/33% of its revenue by FY26/FY28, fueled by large-scale export orders and expanding presence in international geographies.
Valuation and view
KAYNES is the only rapidly growing (over 50% growth guidance), well-diversified (catering to over seven end-user industries) and backward-integrated player (OSAT/PCB facilities to commence by FY26) within the EMS space, with a strong focus on value addition (~42% box-build share in FY24).
We expect the company to continue its robust earnings momentum on the back of: 1) a strong revenue growth supported by a large order book (~INR54b; ~3x FY24 sales) and continuing robust order inflows (~INR24b in 1HFY25) and 2) margin expansion driven by the rising share of high-margin businesses coupled with operating leverage.
We estimate KAYNES to register a revenue/Adj. EBITDA/Adj. PAT CAGR of 60%/67%/74% over FY24-27. We reiterate our BUY rating on the stock with a TP of INR9,100, based on 60x FY27E EPS.
Key risks to our call: 1) an increase in working capital can deteriorate cash flows, 2) supply chain issues can hamper business operations, and 3) a delay in order execution can moderate the growth trajectory.
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