Morgan Stanley Says Kaynes’ Core Business Offer Strong Growth Levers, Lifts TP

Global brokerage Morgan Stanley said Kaynes Technology India Ltd.’s FY24 performance is testimony of its execution prowess in its core electronics manufacturing services (EMS) business and sector tailwinds as well as robust order backlog will drive sustainable growth in the company’s core segment.

Morgan Stanley, which rates the Indian integrated electronics manufacturer as Overweight, raised its target price to 3,845 rupees from 2,440 rupees per share, after lifting its earnings view and changing the valuation methodology.

The brokerage said Kaynes ended FY24 on a strong footing with a 60% top-line growth, industry leading margins and around 2x profitability rise.

“We expect momentum to continue with top-line/PAT CAGR of 36% and 35% (FY24-FY28E), respectively, driven by strong sector tailwinds with increasing thrust on electronic manufacturing in India, healthy backlog, increasing customer traction (inflows, new customer additions) and margin expansion with product mix and operating leverage,” it added.

Morgan Stanley also said Kaynes reiterated its long-term revenue target of $1 billion by FY28E (FY24: 18 billion rupees), driven by core business (75% share), balance by outsourced semiconductor assembly and testing (OSAT) and bare printed circuit board (PCB) manufacturing.

The brokerage raised its core EMS EPS by 10%-14% over FY25-FY26.

ESTIMATES REVISION

• Morgan Stanley raised its revenue estimates by 11% and 14% for FY25 and FY26, respectively, based on FY24 performance and visibility, given strong order backlog of 41 billion rupees (executable in 1.25 years).

• The brokerage also lifted its EBITDA estimates by 7% and 14% for FY25 and FY26.

• It also raised its net profit estimates by 21% and 25% for FY25 and FY26 (effect of higher other income).

Morgan Stanley said its EPS estimate revisions are 10% and 14% for FY25 and FY26Y, respectively. This is lower than adjusted net profit, given new share count issuance for raising equity capital, which would be used as an investment for OSAT and bare PCB manufacturing, it added.

The brokerage has a target price of 5,253 rupees on Kaynes, based on its Bull Case assumptions.

The Bull Case view assumes:

• 41% revenue CAGR in FY24-FY28E, driven by robust growth across verticals,

• 44% EBITDA CAGR, with EBITDA margin expansion of 122 basis points, led by operating leverage,

• long-term (FY28-FY43E) net profit growth of 23%,

• terminal growth of 5.5% and return on equity of 36%.

Kaynes rose 1.5% to 3,382.80 on the National Stock Exchange in early Mumbai trading today.

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