This stock is up 400% since its IPO. Now, there is a trillion-dollar opportunity ahead

This electronics manufacturing services (EMS) player has emerged as a force to reckon with in India’s EMS industry. Investors who spotted Kaynes’ potential early on have been handsomely rewarded.

Since its IPO in November 2022, the stock has surged over 400%, reflecting the company’s strong execution and industry tailwinds.

A large part of this growth story has been fuelled by increasing demand for high-quality electronics manufacturing in India.

And now, with the global electronics system design and manufacturing (ESDM) industry racing toward a $1 trillion valuation, Kaynes finds itself in the middle of a rare, high-stakes opportunity.

For decades, China has been the undisputed leader in electronics manufacturing, thanks to its deeply integrated supply chains, aggressive state support, and unmatched cost efficiencies.

Giants like Foxconn and BYD have built a fortress of scale and reliability, making it difficult for challengers to break in.

Indian players, by contrast, have struggled with heavy dependence on imported components—particularly semiconductors—limiting their competitiveness on the global stage.

But the winds have been shifting. With rising labour costs in China and an increasing push for supply chain diversification, global manufacturers are actively scouting for alternatives.

A trillion-dollar opportunity

This is where India is stepping up. The government’s “Make in India” and production linked incentive (PLI) schemes are fuelling large-scale investments in the electronics space.

The Indian ESDM market is expected to grow at a staggering 34% CAGR, positioning the country as a formidable contender in high-end electronics production.

Kaynes Technology isn’t just riding this wave—it’s making strategic moves to solidify its place in the ecosystem. The company has built expertise in advanced packaging technologies, semiconductor packaging (OSAT), and printed circuit board (PCB) manufacturing, aligning itself with India’s ambition to become a global electronics hub.

Its full-stack electronics manufacturing capabilities give it an edge in addressing the growing demand for customized, high-quality solutions across industries like automotive, industrial automation, and next-gen consumer electronics.

The company has set an ambitious goal—hitting $1 billion (bn) in revenue by FY28. This implies a compounded annual growth rate (CAGR) of 45% over 4 years.

To get there, it is expanding its electronics system design and manufacturing (ESDM) offerings and ramping up its presence in high-growth areas. With global electronics supply chains in flux, this is Kaynes’ moment to establish itself as a serious player.

A 400% rally is impressive, but what lies ahead could be even more significant. The opportunity in India’s EMS sector is bigger than ever, and Kaynes Technology is positioning itself at the heart of it.

   Kaynes Technology – 9MFY25 Revenue Profile

With a strong presence across automotive, aerospace, defence, industrial, railway, and medical sectors, the company is now doubling down on high-growth opportunities in EVs, space exploration, and telecom.

Manufacturing expansion is also in full swing, ensuring it has the scale to back its ambitions.

A financial snapshot: 5-year performance

Kaynes’s financial performance has been robust despite the challenges posed by fluctuating fuel prices, competitive pressures, and the impact of the covid-19 pandemic.

Between FY20 and FY24, Kaynes Technology delivered strong growth. While the revenue has reported a 5-year CAGR of 37.7% the net profit has grown at 79.9%.

Despite this rapid expansion, the company maintained solid financial health, with an average Return on Equity (RoE) of 10.8% and Return on Capital Employed (RoCE) of 24.1%.

The company has a total debt of ₹2.18 billion as of FY24, with a net debt to equity of 0.1.

Kaynes Technology Debt Profile (2020-24)

Kaynes Technology posted strong revenue growth in Q3FY25, with a 30% YoY increase to ₹6.6 bn. The industrials (including EV) and automotive segments were the key growth drivers, rising 38% and 28% YoY, respectively.

The company’s order book surged 60% YoY to ₹60.5 bn, reinforcing strong growth visibility.

Despite these positives, revenue fell short of estimates due to a ₹1 bn delay in smart meter order execution, now expected in Q4FY25. However, management remains confident that the earlier growth momentum will resume given the strong order backlog.

On the profitability front, EBITDA grew 35% YoY and margins expanded 50 basis points to 14.2% due to a favourable business mix.

Net working capital days deteriorated to 117 days from 107 YoY, while net debt rose to ₹6 bn from ₹2.4 bn last year, reflecting higher working capital requirements.

Despite the revenue miss, Kaynes Technology held on to its FY25 EBITDA margin guidance of 15% while slightly lowering its revenue outlook to ₹28-29 bn from the earlier ₹30 bn+.

Management remains upbeat about future growth, citing a strong order pipeline and improving execution in high-margin segments like industrials, aerospace, and railways.

Growth plans

Kaynes Technology is setting its sights on a bold growth trajectory. The company is working to expand its manufacturing capabilities while diversifying revenue streams and solidifying its presence in high-margin businesses.

While the company is aiming for a billion-dollar revenues by FY27-28, it has set a revenue target of ₹45 bn for FY26, driven by growth in EMS, semiconductor packaging (OSAT) and PCB segments.

At the same time, Kaynes is extending its global footprint. Strategic acquisitions like Digicom Electronics in the US are helping the company enhance its high-value electronics manufacturing capabilities while diversifying its revenue base.

To further solidify its international presence, it is looking to deepen its reach in North America and Europe, with plans to acquire profitable companies in the US$ 35-50 m range, accelerating its expansion into key global markets.

Moreover, Kaynes Technology is investing in its semiconductor ecosystem, with a ₹23 bn capex plan for an OSAT facility in Sanand, Gujarat, and an HDI PCB manufacturing unit in Tamil Nadu.

These projects are supported by government subsidies and are expected to contribute significantly to earnings from FY27 onwards.

To fund all the company’s plans, Kaynes, in February 2025, announced plans to raise an additional ₹16 billion (approximately $185 million) through another QIP, as approved by the company’s board.

Stock performance and valuation

Kaynes Technology’s stock reacted negatively after the Q3FY25 results, primarily due to the revenue shortfall and guidance cut.

Currently, the stock is trading at ₹4,279 after falling over 36% since 20 January 2025.

The stock’s price-to-earnings ratio (PE) is a very high 106.

Kaynes Technology is positioned attractively when comparing valuations and growth in the EMS sector. The company trades at a PE multiple of 106, in line with its high growth potential, as evidenced by its 3-year revenue CAGR of 63%. In contrast, Dixon Technologies, despite its market leadership with a PE of 143, delivers relatively lower revenue growth at 40%.

Syrma SGS and Amber Enterprises, with PE multiples of 65.5 and 104, respectively, lag behind Kaynes Technology in both operating margins and revenue growth. Cyeint DLM, while trading at a lower PE of 55, has a modest growth rate of 24%, indicating its valuation is driven by its smaller scale.

Conclusion

Kaynes Technology has undoubtedly positioned itself as a rising star in India’s EMS space, leveraging strong industry tailwinds and a robust growth strategy.

However, its ambitious targets come with execution risks, as seen in the recent revenue miss and guidance cut.

While the company remains confident in its growth trajectory, the rising net debt and extended working capital cycles are points of concern.

At current levels, the stock’s sky-high valuation – trading at 106 times earnings—leaves little room for error.

Investors should closely monitor the company’s ability to meet its revenue and margin goals, especially in high-growth verticals like industrials, automotive, and aerospace.

Any deviation from these targets or delays in execution could dampen investor sentiment, putting pressure on the stock’s lofty valuation.

Before considering any stock, investors should always conduct their own research. It’s crucial to evaluate a company’s financials, growth prospects, corporate governance, and market position to ensure it aligns with your investment goals and risk tolerance.

For now, Kaynes Technology remains a compelling story, but the coming quarters will be crucial in proving its ability to deliver on its ambitious plans.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. 

This article is syndicated from Equitymaster.com