Kaynes Tech Sees Demand Across All Verticals

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00:00Hello and welcome, you are watching the small and mid cap show, I am Mahima Vacharajani.

00:12Well, we are going to speak to two very interesting managements today.

00:16The first one is Keynes technology and the other one is TANFAC.

00:19First up we have Keynes technology and we are joined by Mr. Jayaram Sampath, whole time

00:23director and CFO of Keynes technology who joins us on the show now.

00:28Welcome to the show sir.

00:29My first question to you is that, you know, new business of OSAT and bare board PCB manufacturing,

00:36you know, is to enable backward integration and that has been on cards for some time now.

00:43So, you know, I want to understand as to how will this aid your revenue one thing and second

00:48this will have a significant impact on the margins.

00:51So what is the kind of margin expansion that you are expecting from this backward integration?

00:58Yeah, so thank you, thank you for having me on the show.

01:03Fundamentally, our objective of getting into OSAT and high-density interconnection PCB

01:09board was with the intention of providing to our customers an integrated EMS facility.

01:16So we do have, of course, similar assembly technologies and we can do testing and we

01:22can do designing, we can do plastics and all other components.

01:25But these two are important, you know, activities, which are kind of futuristic in their approach

01:33right now, but many customers are asking for it.

01:36So in some sense, it is future integration, of course, backward in terms of value chain,

01:43even the history board, et cetera.

01:46So we have talked about a total capex of about 30 million rupees, that's about 3000 crores

01:51in the case of a Semicon assembly or what is known as OSAT.

01:57And the other one, this first phase will be about 730 crores of investment into PCB board.

02:04So if you look at while these projects are still out there, right, it takes about a couple

02:10of years for the factories to set up and then get into something like production with reasonable

02:16capacity utilization, et cetera.

02:18So we think that these businesses will start yielding some revenues by late FY26 and then

02:26by FY28, we get into a reasonable capacity utilization, 70-80% utilization of these businesses.

02:34These businesses are also asset intensive.

02:37So typically if you analyze the numbers available for the global players in other countries,

02:45for one rupee of asset, they yield anywhere between one to one and a half rupee worth of sales.

02:50So you could make an estimate of what that number could be based on our total capex of

02:56play right now, and then the kind of capacity you play.

03:00These businesses, the margins are a function of how we do particular activity, whether

03:05it's an EMS or whether it's a Semicon.

03:08We are moving our, let's say, our emphasis towards the bus packaging and those kinds

03:14of areas.

03:15And we also would like to work in niche markets in the Semicon area.

03:20It's too premature to say exactly what we will do because we are still waiting the nod

03:25from the government, which could happen anytime now, since the same government has voted to

03:29power and the model code of conduct is now over.

03:34So we are anytime expecting the nod from the government for the capital subsidies.

03:39So the moment that happens, we can pivot the program and we have also taken all the other

03:42steps required to make this particular thing quite future proof.

03:49So we work in the area of advanced packaging, work with many of the clients to make sure

03:54that we hit the road running.

03:59So you can expect a reasonably, let's say, to some extent, a highly accretive kind of

04:05a business.

04:06Right.

04:07Right.

04:08So, Mr. Sampath, you mentioned two things here.

04:10First thing about the Semicon, that you're, you know, infusing Capex to build an entire

04:15ecosystem when it comes to semiconductor.

04:17And now that the government is pretty bullish on being atma nirbhar when it comes to semiconductors,

04:22give us some more color as to, you know, what kind of revenue potential will you be tapping

04:26from this area?

04:27First thing.

04:28And secondly, you also mentioned that you're expecting your approval for the 50% of subsidiary

04:33that you're expecting from the government anytime soon.

04:35How much will that aid your revenue as well?

04:38Yeah.

04:39So the entire business plan to begin with is based on government's program by the Indian

04:45Semiconductor Commission.

04:47And so obviously, these are high capital intensive areas.

04:51So in order to get, even to make a beginning, we require some governmental support, which

04:55the central government and state governments have done very well.

04:59So once that comes, so these businesses also, there are two types of businesses, like one

05:03is the older businesses, like the legacy businesses, as they are called, which the other countries

05:08like Malaysia, Thailand, Vietnam, China, etc. have been doing it for the last 20, 30 years.

05:14And then the other part of business, which we, I just talked about in the previous conversation,

05:19that we want to do a mass packaging.

05:21And so that is something which will take India up the technology curve.

05:25And we kind of stand head to head with some of the developed companies.

05:30So the revenue potential, if you see in a, just to any company which invests something

05:35like a 15 billion or 3000 crore, should look for revenues at 80% implementation anywhere

05:40between, let's say, 2800 to about 4200 crore kind of number, based on whatever the other

05:46companies are doing abroad, right?

05:48And I think there's no reason why we should not be able to get to those kinds of numbers.

05:51Eventually, we are seeing that we start working in the 526 end, we start with some revenues,

05:58and then it may take about two to four years to kind of fully play out this thing.

06:04And when we say we are doing the entire thing, it's 80-empty, a simple test market package.

06:09Unlike other economies where people could choose one of those portions of, you know,

06:15outside business and do it because there was lots of other companies doing testing or packaging,

06:21etc.

06:22But in India, since the ecosystem is just getting developed, so companies who are fully

06:25integrated only can actually add value.

06:28So we have one, our project is to do the entire thing.

06:31And we are targeting many semiconductor companies, hardware companies.

06:35And it's going to add to our existing business also in terms of ability to do modules and

06:40things like that.

06:41Point taken, Mr. Sampath.

06:42You know, my next question is in terms of the international expansion that you know,

06:47you're tapping internationally as well, you're planning to expand.

06:51And you recently acquired a U.S.-based company called Digicon Electronics, which is a player

06:56in low-volume prototyping work.

06:58So I want to understand that what is the kind of revenue potential from this particular

07:01acquisition?

07:02And furthermore, which kind of geographies are you planning to tap into?

07:07Yes.

07:08So it's a very good question, you worded it correctly.

07:11So see, one of the largest markets for electronics, whether it's consumer or whether it's industrial

07:16or any such area of professional electronics is the United States.

07:21So at this point in time, we do have some clients in the U.S., but it's not really being

07:25justice to the potential that a company like us can do.

07:27We've made a beginning by acquiring this company, and then we get introduced to clients in the

07:32U.S.

07:33And then we offer our services in Digicon for doing low-volume work, which is like prototyping

07:39work, et cetera, development work, et cetera.

07:42And then we take mass production work to other sites, including India.

07:47And a similar thing we do in other geographies.

07:49So the first set of growth for this company up to, let's say, whenever we get to this

07:541 billion, will be driven by domestic business more.

07:57But beyond that, the growth will be driven by overseas geographies, including the United

08:02States.

08:03And of course, as and when we take those steps, including places like Europe and so on.

08:09So at this point in time, it's a very, let's say, a small enterprise there.

08:14But we are very bullish about the growth potential.

08:17It can, let's say, be a significant portion of our revenues by, let's say, FY28 or so.

08:24Understood.

08:25So when you say significant portion of revenues, from what I understand, as per FY24, 90% came

08:31from India, 5% came from Europe, and 3% came from North America.

08:35So how will this mix change then?

08:37Yeah.

08:38So FY28, if you say, if I were to hazard a guess, it would be more like 70% to 72% from

08:46India.

08:47The remaining 28%, some of it will, of course, about 15-20% will be those side businesses

08:52which will go outside India, and the remaining will come from geographies like US, primarily.

08:58So we could get anywhere between 5% to 10% of business just from US alone.

09:03There will be other geographies too by that time in the export.

09:08Got it.

09:09Got it.

09:10Mr. Sampath, one last quick question on the financial side of things.

09:11You know, your net debt has increased quite significantly, like from 4.6%.

09:16It's understood because you're doing a lot of CAPEX at present.

09:19But near future, any kind of debt reduction plans going forward?

09:23Yeah.

09:24So the entire financial thing is driven by working capital improvements.

09:28So last year, we had improved our working capital from 99 days to about 83 days.

09:34This year, we'll continue this improvement and be closer to 70 days of net working capital.

09:39And that will definitely disproportionately reduce the debt.

09:43And we also, as a corporate policy, we don't want to use debt for anything other than working

09:47capital.

09:48Mostly all the other assets, CAPEX, et cetera, is done through either our own earned cash

09:55flows or equities.

09:59So going forward, it will kind of become more efficient and you can look forward to a lower

10:05working capital and then hence more reasonable, let's say, figure on debt, et cetera.

10:11Understood.

10:12Well, Mr. Sampath, thank you so much for giving us those insights and taking our time and

10:16speaking with us at NDTV Profit.

10:18Yes.

10:19Thank you very much.

10:20Thank you.

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