Electronics manufacturing company Kaynes Technology India is expected to put up a stellar performance on debut on November 22, despite recent volatility and consolidation in the equity market. All credit goes to the subscription numbers for its initial public offering (IPO), the government’s increased focus on defence sector (given the company’s presence in, among other things, the aerospace and defence segments), a healthy order book with good revenue visibility and a strong customer base.
The listing premium is likely to be in the range of 35-40 percent over issue price of Rs 587 per share, analysts said.
The Rs 858-crore IPO of the Mysuru-based company providing a diverse array of electronics system design and manufacturing (ESDM) services was subscribed 34.16 times during November 10-14, backed by every class of investor.
Among them, qualified institutional investors were the most enthusiastic, buying shares 98.47 times the allotted quota, followed by non-institutional investors with 21.21 times subscription, retail 4.10 times and employees 11.92 times.
Despite the consolidation mood in secondary market, Kaynes Technology garnered higher-than-expected investor response from all categories of investors mainly on the back of its unique business model and wide-ranging product portfolio with specialised sector focus in aerospace and defence, outer-space, nuclear, medical, railways and IT, and boasting of marquee global customers like Hitachi, Siemens and Canyon Aero.
“Based on overwhelming response and demand, we assume listing would be around Rs 800-820, which translates to 36-40 percent premium over the upper end of the IPO price band,” said Prashanth Tapse, senior vice-president, research, at Mehta Equities, a Mumbai-based online brokerage.
He added that the healthy listing premium is justified given a niche business segment with acceptable valuations, a strong order book and unlimited export opportunities. “We remain optimistic in this space and believe Kaynes Tech would do well in the long term as the industry has bright prospects.”
Considering the overwhelming investor participation, Swastika Investmart also expects the company to list at around Rs 820 per share, 35-40 percent higher over the issue price, Girish Sodani, head of equity markets at the online broking house, also based in Mumbai, said.
In fact, the expected listing price is close to its grey market premium. The share’s price in the grey market was more than Rs 230 above the issue price of Rs 587, analysts said. The grey market is an unofficial trading platform (unlisted market) for IPO shares.
Kaynes has over 30 years of experience in providing conceptual design, process engineering, integrated manufacturing and lifecycle support. These services entail critical processes and have meticulous integrations. Hence, Swastika Investmart believes the company will have continuous growth in business and sustainability, Sodani said.
At the upper end of the price band, Kaynes is looking at a price-earnings multiple of 81.9x its TTM (trailing twelve months) earnings and a market cap of Rs 3,412.9 crore, which analysts believe is fairly priced.
Kaynes reported profit after tax of Rs 41.68 crore on revenue of Rs 710 crore for the financial year ended March 2022, against a profit of Rs 9.73 crore on revenue of Rs 419.4 crore in the previous year.
The public offer comprised a fresh issue of Rs 530 crore and an offer for sale of Rs 328 crore by selling shareholders.
The fresh issue proceeds will be utilised for repaying debt, expansion of existing manufacturing facilities at Mysuru (Karnataka) and Manesar (Haryana); investment in a subsidiary, Kaynes Electronics Manufacturing, for setting up a new facility at Chamarajanagar (Karnataka), and working capital requirements.
“The incremental capex planned towards expanding its PCBA (printed circuit board assembly) capacity in Karnataka and Haryana in existing facilities as well as a new facility in Chamarajanagar will have a greater potential to adding future revenue,” Narendra Solanki, head, equity research, at Anand Rathi Share and Stock Brokers, said.
With a constant thrust towards product innovation and R&D and higher backward integration, the company will be able to achieve higher operational efficiency in the future, he added.
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