Kaynes Technology India
Kaynes Technology India is coming out with a 100% book building; initial public offering (IPO) of 1,50,65,880 Equity Shares of face value of Rs 10 each in a price band Rs 559-587 per equity share.
Not more than 50% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not more than 15% of the issue will be available for the non-institutional bidders and the remaining 35% for the retail investors.
The issue will open for subscription on November 10, 2022 and will close on November 14, 2022.
The shares will be listed on BSE as well as NSE.
The face value of the share is Rs 10 and is priced 55.9 times of its face value on the lower side and 58.7 times on the higher side.
Book running lead managers to the issue are DAM Capital Advisors and IIFL Securities.
Compliance Officer for the issue is Srividhya Narayanan.
Profile of the company
The company 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.
The company undertakes “Build To Print” or “Build to Specifications” of complex box builds, sub-systems and products across various industry verticals. It undertake turnkey electronics manufacturing services of PCBAs, cable harness, magnetics and plastics ranging from prototyping to product realization including mass manufacturing. It offer ODM services in smart metering technology, smart street lighting, brush less DC (BLDC) technology, inverter technology, gallium nitride based charging technology and providing IoT solutions for making smart consumer appliances or devices IoT connected. It offers conceptual design and product engineering services in industrial and consumer segments.
The company’s services include PCB cladding or electrical schematics to embedded design and submitting proof of concept to prototyping. It also offer connected product engineering and solutions. It has a portfolio of hardware, software accelerators and proprietary sensors along with cloud platform based service and solution offerings in asset tracking, remote device management and smart product development. Its digital engineering offerings leverage latest technologies including IoT, big data, machine learning, cloud and media to improve customers’ efficiency. It also provide end-to-end IoT and cloud enablement solutions and offer IoT data and analytics platform and vertical IoT solutions.
Proceed is being used for:
Repayment/ prepayment, in full or part, of certain borrowings availed by the Company.
Funding capital expenditure towards expansion of existing manufacturing facility at Mysuru, Karnataka, and near existing manufacturing facility at Manesar, Haryana.
Investment in wholly owned Subsidiary, Kaynes Electronics Manufacturing, for setting up a new facility at Chamarajanagar, Karnataka.
Funding working capital requirements of the Company.
General corporate purposes.
Industry overview
Electronics is one of the fastest growing industries in the country. The total electronics market (which includes domestic electronics production and imports of electronic finished goods) in India is valued at Rs 6,711 billion ($91 billion) in Fiscal 2021, which is expected to grow at a CAGR of 25.5% to reach Rs 20,873 billion ($282 billion) in Fiscal 2026. Domestic production accounts for approximately 74% of the total electronics market in Fiscal 2021, valued at Rs 4,975 billion ($67 billion), and is expected to grow to approximately 96% by Fiscal 2026, valued at Rs 20,133 billion ($272 billion), owing to various government initiatives and the development of India's electronic ecosystem. Also, the global landscape of electronic design and manufacturing is changing significantly, and revised cost structures have shifted the attention of multinational companies to India. At present, the Indian government is attempting to enhance manufacturing capabilities across multiple electronics sectors and to establish the missing links in order to make the Indian electronics sector globally competitive. Increasing penetration of consumer electronics in semi-urban and rural markets, a shift in lifestyle among the Gen Y population, and the adoption of smart devices are some of the key drivers that are assisting the rapid expansion of this industry.
The Indian ESDM industry has benefited from a greater focus on manufacturing and an overall growth in the usage of electronics in many aspects of life. Domestic demand for mobile phones, PCs, consumer electronics, medical products, strategic and automotive electronics and offers a huge growth potential. Because of the 5G rollout, there is an increase in demand for telecom infrastructure projects, as well as a necessity to build them locally. Furthermore, growing labour costs in other parts of the world have led major OEMs to favour India, which is a practice of large OEMs to outsource manufacturing rather than to create their own infrastructure. ESDM market in India enjoys unique benefits of an explosive domestic demand and the migration of manufacturing from other manufacturing havens driven by multiplicity of factors. These reasons have resulted in the Indian ESDM market growing at a higher rate than average global market and are expected to intensify in the next decade
Pros and strengths
IoT solutions enabled integrated electronics manufacturing player: The company is an end-to-end and IoT solutions enabled integrated electronics manufacturing player, having capabilities across the spectrum of ESDM services. It is engaged in concept co-creation with its customers followed by product realization and life-cycle support. It also provides various value-added services such as obsolescence management, warehousing support, value engineering and value analysis, last time buy services that include purchase of electronic components that are either being discontinued or have been discontinued in larger quantities than immediately required for manufacturing continuity, regulatory and compliance and DFM / DFA analysis. Its ODM capabilities include hardware, software and firmware design, mechanical design, product integration and testing, amongst others. It has also evolved to offer customers in-house developed IoT technology consisting of hardware, software, and firmware design and tools which accelerate time-to-market and de-risk its customer’s product development lifecycle.
Long-standing relationships with marquee customer base: The company has, through its business operations, established long-term relationships with well-known customers across industries it cater to. It has a diversified customer base and it served 229 customers in 21 countries across three continents in the three months ended June 30, 2022. Its customers span multiple sectors, ranging from electronics, to automotive, to healthcare, industrial and IoT. It has a balanced mix of domestic and international customers including certain Fortune 500 companies, multinational corporations and start-ups. Its continued success is, in part, due to its customer centric practices such as open book costing, internal and external audits, and direct shipments to end-customers. Its customers include Agappe Diagnostics, Canyon Aero (formerly Cobham Aerospace Communications) (“Canyan AERO”), Frauscher Sensor Technology India, Hitachi Rail STS India, India Japan Lighting, Siemens Rail Automation, Iskraemeco India and Tonbo Imaging India.
Strong supply chain and sourcing network: The company possesses a mature and reliable supply chain network. It has long-term relationships with its vendors within India and outside India, that has led to improvement in credit terms over the years. As of June 30, 2022, it works with over 871 vendors and source materials from various regions including North America, Europe, Singapore as well as locally within India. Its top 10 suppliers have an average relationship period of over 10.80 years, as of June 30, 2022. It does not rely on a single source or vendor for components, instead, have alternative sources for vendors for each component category. This offers it leverage to ensure availability of materials and negotiate better credit terms at cost-effective rates. It utilises specialized dealers for niche verticals. It also possess the technical expertise to re-engineer components that are difficult to source, or components that are on the verge of becoming obsolete or has been discontinued by the various vendors.
Global certifications for each industry vertical catered to and multiple facilities across India with advanced infrastructure: Over the years, the company has focused on creating robust manufacturing systems and processes. It adheres to global standards and has obtained various global certifications. This ensures that its processes comply with customer specific, industry specific, statutory health and safety, as well as environmental and social and governance requirements. Its systems and processes are also certified by global certification bodies that helps it to serve its customers stringent quality specifications and assists in new customer acquisition. It is also part of the Maruti Center For Excellence (MACE) and have been consistently participating and getting approved as part of the Supplier Excellence Programme. This allows it to be seen by potential customers as a MACE approved supplier for electronic assemblies. Further, it has qualified as a “Green” partner for a certain customer and accredited for electronic assemblies for space craft applications from U.R. Rao Satellite Centre, ISRO. It has also received the Certification of Military Airworthiness documents or CEMILAC for instrumentation electronics repair, which enables it to perform avionics repair.
Risks and concerns
Rely on the constant supply of semiconductors from overseas market: The company relies on the constant supply of semiconductors from overseas market for manufacturing products. The imported raw materials accounted for 64.46% of its total purchases of raw materials in Fiscal 2022. The availability of semiconductors is dependent on the global supply chain and shortages of semiconductors can be caused by, among other things, variations in the supply of semiconductor material, import duties, currency exchange rates, natural disasters, changing economic conditions, or other geographic and political events. For instance, the shortage of labour, local restrictions impacting the transport and logistics arising due to COVID-19 contributed to a bottleneck in supply for the semiconductor industry which is expected to continue in near future. Further, the majority of semiconductor demand is now fulfilled by imports from the United States, Japan, and Taiwan and any potential conflict between China and Taiwan may result in disruption in the supply chain of semiconductors and lead to shortages of the same.
Business is subject to seasonality: A few customer businesses in its industrial segment are subject to seasonality. Its sales are generally highest in the fourth quarter. Certain its products used in fans such as BLDC motor controllers and switch gear electronics are typically sold in the peak summer months in India which is quarter of the Fiscal and which maps with the fourth quarter manufacturing of previous year. While certain end-use industry verticals it serves witness seasonality which in turn impacts its sales, however, no fixed trend of seasonality is ascertainable for its operations on an overall basis. Therefore, its results of operations and cash flows across quarters in a Fiscal may not be comparable and any such comparisons may not be meaningful, or may not be indicative of its annual financial results or its results in any future quarters or periods.
Significant working capital requirements: The company’s business requires significant working capital including in connection with its manufacturing operations and its development of new products. The actual amount of its future capital requirements may differ from estimates as a result of, among other factors, unforeseen delays or cost overruns, unanticipated expenses, regulatory changes, economic conditions, technological changes and additional market developments. Its sources of additional financing, where required to meet its working capital needs, may include the incurrence of debt, the issue of equity or debt securities or a combination of both. If it decide to raise additional funds through the incurrence of debt and increase in rate of interest for any reason whatsoever, its interest and debt repayment obligations will increase, which may have a significant effect on its profitability and cash flows.
Do not have patents registered for any of products: The company’s operations rely heavily on the effectiveness of its products. It does not have any patents registered for any of its products. It design, develop, and manufacture products for its customers. Accordingly, any specific design or intellectual property that it develops as part of its operations accrues to the relevant customer for whom it undertakes such production. It protects its technological developments by embedding the technology and innovations into its processes and making it a part of its practice. To remain competitive, it must continue to stay abreast of the constantly evolving trends and to enhance and improve the responsiveness, functionality and features of its products, including cost to their end customers and compete, it must continue to invest significant resources in research and development to enhance its information technology and improve its existing services. The industry in which it operates is characterized by technological evolution and changes in customer requirements, which could render its existing technologies and systems obsolete going forward.
Outlook
Kaynes Technology is a leading end-to-end and IoT solutions-enabled integrated electronics manufacturer in India. It has capabilities across the entire spectrum of ESDM services. Kaynes has over three decades of 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. It has advanced manufacturing infrastructure that enable it to manufacture products at variable or flexible volumes across all industry verticals. The company collaborates with its customers through the entire product life-cycle and after-sales and end-of-life services including assisting with concept creation, product development, prototyping, testing and mass manufacturing. This results in customers shortening their product development and time-to-market cycles. On the concern side, the company’s operations and performance are directly related to and affected by the cost of various inputs including semi-conductors, metals such as copper, aluminium, steel, plastics and other commodities. The cost of these inputs especially the cost of raw materials and power and fuel constitute a significant percentage of its product costs. Besides, pursuing cost-cutting measures while maintaining rigorous quality standards may lead to an erosion of its margins, which may have a material adverse effect on its business, results of operations and financial condition.
The issue has been offered in a price band of Rs 559-587 per equity share. The aggregate size of the offer is around Rs 842.18 crore to Rs 884.37 crore based on lower and upper price band respectively. On the performance front, total income increased by 67.27% from Rs 424.66 crore in Fiscal 2021 to Rs 710.35 crore in Fiscal 2022. The company recorded a profit for the year of Rs 41.67 crore in Fiscal 2022 compared to profit for the year of Rs 9.73 crore in Fiscal 2021. Meanwhile, the company intends to acquire customers that can provide higher value business, to increase the wallet share with its existing customers through a combined means of marketing strategies and capacity enhancement of its manufacturing facilities to improve its services to its customers, and to attract customers who can provide to it higher margins. As it looks to expand its operations both domestically and internationally, it intends to have additional sales and business development representatives in geographies outside India to acquire new and larger customers in such geographies.
