Kaynes Techno IPO review (May apply)

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Review By Dilip Davda on November 8, 2022

•    KTIL is an end-to-end and IoT solutions-enabled integrated electronics manufacturer.
•    It has established a niche place and has orders worth Rs. 2266 cr. plus on hand.
•    Boost in its top and bottom lines for the past 15 months indicates growth prospects.
•    Based on its financial performance, the issue appears fully priced. 
•    Well-informed investors may consider an investment with medium to long-term perspectives.

ABOUT COMPANY:
Kaynes Technology India Ltd. (KTIL) 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.

KTIL's business is classified based on the stage of services that it provides to customers. The company classifies its operations under the following business verticals:

OEM - Turnkey Solutions - Box Build ("OEM - Box Build"): it undertakes "Build to Print" or "Build to Specifications" of complex box builds, sub-systems, and products across various industry verticals.

OEM - Turnkey Solutions - Printed Circuit Board Assemblies ("PCBAs") ("OEM - Turnkey Solutions"): it undertakes turnkey electronics manufacturing services of PCBAs, cable harnesses, magnetics, and plastics ranging from prototyping to product realization including mass manufacturing.

ODM: KTIL offers ODM services in smart metering technology, smart street lighting, brushless DC ("BLDC") technology, inverter technology, gallium nitride-based charging technology, and providing IoT solutions for making smart consumer appliances or devices IoT connected.

KTIL operates eight strategically located manufacturing facilities across India in the states of Karnataka, Haryana, Himachal Pradesh, Tamil Nadu, and Uttarakhand. Its facilities are located in proximity to customers, allowing it to service their requirements efficiently and cost-effectively. Certain manufacturing facilities are approved under the Electronics Hardware Technology Park Scheme of Software Technology Park of India, Bengaluru, and the 100% Export Oriented Unit Scheme of Madras Export Processing Zone, Chennai, Tamilnadu offers incentives similar to a special economic zone.

As of June 30, 2022, it had a combined capacity to assemble over 1,500 million (on an annualized basis) components for the period and have an exclusive line for 'Green Manufacturing' that is compliant with Directive 2002/95/EC Restriction of Hazardous Substances ("RoHS"). As of June 30, 2022, its manufacturing infrastructure also includes one design facility and two service centres.

As of June 30, 2022, KTIL had 1,651 permanent employees and 65 persons employed as contract employees.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its need for repayment/prepayment of certain borrowings (Rs. 130.00 cr.), Capex for expansion (Rs. 98.93 cr.), investments in wholly owned subsidiaries (Rs. 149.30 cr.), working capital (Rs. 114.74 cr.), and general corporate purpose, KTIL is coming out with a maiden combo IPO of fresh equity shares issue worth Rs. 530 cr. and an Offer for Sale (OFS) of 5584664 shares. The issue opens for subscription on November 10, 2022, and will close on November 14, 2022. It has announced a price band of Rs. 559 - Rs. 587 per share for its book-built route IPO. A minimum application is to be made for 25 shares and in multiples thereon, thereafter. The company has allocated 50% of its IPO for QIBs, 15% for HNIs, and 35% for Retail investors. The issue constitutes 25.13% of the post-issue paid-up equity capital of the company. Post allotment, shares will be listed on BSE and NSE. 

The company has done a pre-IPO placement of Rs. 130.00 cr. (2338760 shares) at a price of Rs. 555.85 per share in October 2022. The joint Book Running Lead Managers (BRLMs) for this IPO is DAM Capital Advisors Ltd. and IIFL Securities Ltd., and Link Intime India Pvt. Ltd. is the registrar to the issue. 

Having issued initial equity capital at par, the company issued/converted further equity capital in the price range of Rs. 61.02 to Rs. 600 per share between April 2016, and October 2022. It has also issued bonus shares in the ratio of 3 for 2 in March 2011, 0.98 for 1 in September 2012, 1 for 3 in September 2017, 11121 for 95998 as well as 17377 for 150000 in December 2021, 5 for 1 in February 2022. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 0.25, Rs. 0.38, and Rs. 73.94 per share. 

Post-IPO, KTIL's current paid-up equity capital of Rs. 49.11 cr. will stand enhanced to Rs. 58.14 cr. Based on the upper cap of the IPO price, the company is looking for a market cap of Rs. 3412.97 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has (on a consolidated basis), posted turnover/net profits of Rs. 370.17 cr.  / Rs. 9.36 cr.  (FY20), Rs. 424.66 cr. / Rs. 9.73 cr. (FY21), and Rs. 710.35 cr. / Rs. 41.68 cr. (FY22). For Q1 of FY23 ended on June 30, 2022, it earned a net profit of Rs. 10.05 cr. on a turnover of Rs. 199.98 cr. As per management, as of June 30, 2022, they had an order book worth Rs. 2266 cr. plus. 

For the last three fiscals, it has reported an average EPS of Rs. 5.57 and an average RoNW of 14.21%. The issue is priced at a P/BV of 12.96 based on its NAV of Rs. 45.30 as of June 30, 2022, and at a P/BV of 3.91 based on its post-IPO NAV of Rs. 149.98 at the upper cap. 

If we annualize its FY23 earnings and attribute it to post-IPO paid-up capital, then the asking price is at a P/E of around 84.95. 

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer documents. It will adopt a prudent dividend policy post-listing, based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, KTIL has shown Syrma SGS, Dixon, and Amber Enterprise as their listed peers. They are currently trading at a P/E of around 166.79, 159.62, and 186.37 (as of November 07, 2022). However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORDS:
The two BRLMs associated with this offer have handled 38 public issues in the past three years, out of which 13 issues closed below the offer price on the listing date.

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