Kaynes Tech Solid Q1 Performance Across Segments; What Factors Are Driving Growth? | Jairam Sampath

Who says IPOS seldom make money. Kaynes Technologiesa shining example of big wealth creation by betting on fist gen technocrat entrepreneur who execute well good ROCE moat and opp size is huge. Key here is not to get distracted by optically high PE but focus on multiyear fwd basis as opp size is huge

Kaynes IPO came at 587 In Nov 22 & NOW TOUCHING 4500 .

Disclose Invested in ipo & since long

Piramal Pharma –

Q1 results and Concall highlights –

Revenues – 1971 vs 1787 cr, up 10 pc
EBITDA – 224 vs 171 cr , up 31 pc
Share of profit of associates – 22 vs 14 cr, up 56 pc
PAT – (-) 89 vs (-) 99 cr ( due heavy depreciation and finance costs )

Segment wise revenues –

CDMO – 1057 cr, up 18 pc ( seeing signs of revival in biotech funding. Also seeing steady inflow of orders for commercial manufacturing of on-patent molecules – a key positive ). Also seeing uptick in generic API business

CHG ( complex hospital generics ) – 631 cr, up 2 pc ( anesthesia products reported healthy volume growth in US and EMs – offset by price erosion in US ) Aim to keep expanding portfolio offerings and signing new in-licensing deals. Robust demand seen for Sevofluranne and Isoflurane

ICH ( India Consumer Health ) – 264 cr, up 10 pc ( launched 7 new products, power brands grew @ a strong 19 pc YoY ). New product launches include –

Littles – Baby Diapers
Littles – Baby Detergent
I-Active – Period panties
I-Feel – Intimate women wash
Bohem – men’s hair removal spray
Tri-Active – mosquito nets

Company’s power brands portfolio includes – Littles, I-Range, Tetmosol ( anti-fungal soaps and dusting powder ), Lactocalamine and Polycyrol ( antacids )

In general, 35 pc of company’s EBITDA comes from H1 and 65 pc comes from H2

**50 pc of company’s CDMO work is now innovation related ( ie related to on patent molecule manufacturing + Clinical trials of new molecules ) vs 35 pc in FY 20. Split between Development : On patent Commercial manufacturing is aprox 70:30. That means, on an annual basis – company is generating an aprox revenue of 700 cr from on Patent manufacturing on an annual basis **

19 pc of ICH segment sales come from E-Commerce. The E-comm channel grew by 37 pc YoY

Continue to maintain early teens guidance of growth in Topline and EBITDA and meaningful growth in PAT

Most of company’s sales promotion, advertising efforts in the ICH business are directed towards power brands. Other brands are likely to be in sustain mode

The Bio Secure Act passed in US should act as a tailwind for the company. However, the uptick in business should take some time

Q1 is always the weakest for the company. Business usually picks up from Q2. Expecting the same in FY 25 as well

If the interest rates start to trend downwards, the same will get reflected as savings on interest costs for the company

Company has a product pipeline of 17 products in the CHG business in US. Out of these, 05 are already approved

No of molecules in Phase – 1, 2, 3 development stages @ 68, 38, 33 – as on 31 Mar 24. This looks like a very healthy pipeline. Even if 10-15 molecules from the 33 molecules in phase 3 go into commercial production, company’s revenues from on patent manufacturing can potentially double in 2-3 yrs ( or go up by even higher percentage ) from 700 to > 1400 cr / yr

Disc: holding from lower levels, biased, not SEBI registered, not a buy/sell recommendation

To clarify, I was not criticizing you, it was more an anguish that when one quarter or two comes bad, how all of us immediately attack the same guy who dug the bank out of a serious hellhole. I thought you were drawing incorrect or rather unfair inferences hence commented, despite being his big critic, pl see my prior posts of many years.

I didn’t quite see the comment as a U turn at all. Everything has a context. The question from analyst was that you brought down cost income ratio at capital first so sharply in five years and why it is taking so much time for you here at IDFC Bank. My sense from the hesitation was that VV was guessing that it may be because in an NBFC entire borrowing is given out as loans… while in a bank 70%. Something like that. It was a response to a specific question, not a U turn. He probably still thinks model of banking license is better than NBFC. That is a separate question to ask, you need not connect that answer with this question.

On Capital First, yes it was 800, it had moved from 120-130 levels in 2012, so all of us who were with him enjoyed that ride. But everyone screamed that merger with infra bank is a bad idea, to top, IDFC Bank posted very bad results again and again all three quarters, 600 crores loss in Q2 19. IDFC Bank stock came down immediately and dragged down Capital First Stock with it because merger ratio was already announced and sealed. I made many comment in social media about this… but management didn’t listen and went ahead with their merger.

Capital first was on a roll, continued to post PAT growth of 40% plus even after merger announcement like they did in prior years, so it was clear to all that it was IDFC Bank results plus infra scare that dragged itself down, and brought down Capital First with it. At merger time IDFC Bank stock was 37 something.

On cost to income, I am no expert, but when C:I is 95 and you invest a lot into branches etc, C:I would have only gone up. So if it comes down to 65% in 7 years it sounds great job to me, though I am personally doubtful they can achieve that, looks tall order. Indusind has been around for 20 odd years. There is no parallel of infra DFI with low profits. So just going in good faith with management.

I asked some analysts why they value them so much at such low ROA ROE. They said smell is positive and there is belief. I spoke to some tech vendors of the bank they said this is one bank which is cutting edge. These things made me realise ther are other factors here, but I can’t get my head around it.

Btw, they are guiding for even higher provisions in q2 23, “provisions will be more elevated in Q2 and then will come down in Q3 and Q4”. Their words not mine. So don’t hold your breath for Q2 going by their own commentary. Lets see how markets take their weak projections.

It is a donation to their charitable foundation. Not a sale.