Kaynes Technology India Ltd.'s proposed semiconductor plant in Gujarat's Sanand will finish construction in a year and begin contributing revenue by the third quarter of fiscal 2026, said Managing Director Ramesh Kunhikannan.
"The OSAT plant is going to be an assembly house and testing plant. It is a project of over Rs 3,000 crore, and we will be investing around Rs 850 crore," he told NDTV Profit. "We need a year's time to finish construction. We are expecting first revenue by the third quarter of the next fiscal year."
The Union Cabinet of India, chaired by Prime Minister Narendra Modi, approved Kaynes Technology's proposal to set up Kaynes Semicon Pvt., in Gujarat's Sanand on Monday. The new unit will be set up with an investment of Rs 3,307 crore. Kaynes Semicon will assemble, test, mark, and package 60 lakh chips per day, an exchange filing said.
Chips produced in this unit will serve industrial, automotive, consumer electronics, and information technology spaces.
"We get 75% subsidies on plant and machineries from central and state governments. For every rupee of capex, the revenue potential is between Re 1 to Rs 1.5," Chief Financial Officer Jairam Sampath said.
Demand for advanced packaging will go up and be more margin accretive for the company in the near future. The margin in this segment is expected around 18-20% or higher in the subsequent years, he said.
"We see significant revenue proportion from this business in the fourth quarter of next fiscal...These will address new clients from semiconductor space. The market is much larger than what we can offer," Sampath said.
The semiconductor plant is positive for the company, although delay in acquiring government's approval has been a subject of concern in recent past, Morgan Stanley said in a note on Monday.
In near term, the focus should be on ramping up execution, Kotak Institutional Equities said, as it raised its earning per shares estimates by 1%, expecting a slight pick up in the company's OSAT execution.
Here Are The Excerpts
Why don't you walk our viewers through what this OSAT plant is about? What is the investment you have earmarked? What is the potential capacity you're looking to add and when will this be revenue creative? Mr. Ramesh, you want to take that? I'll start with you, because Jairam and I already spoke a few days ago.
Ramesh Kunhikannan: Yes. See, our OSAT plan is going to be an assembly house, and it will have a test facility too. Now, we have planned a project for around 4,000 crores. We will be investing around 850 crores. So, this is on the plant and machinery. But from that, there will be some civil works and all put together.
So, we are excited that the government has given us the approval, and then we want to start. We feel we need a year's time for construction activity. We have acquired land, we have done our planning stage, so execution will start in a month's time, and from there, we will take for civil construction, and our first revenues should be up in the third quarter of 2026. This is what we are planning.
Third quarter of 2026 when you will have it up and functioning in operation in that sense. You said you were looking to allocate about 800 crore rupees towards this investment and we're looking to have about a 4,000-crore project in that sense.
So how much percent of capex are you currently pencilling in and also for every rupee that you spend on this capex, how much of sales would you be looking to generate?
Jairam Sampath: So fundamentally, we get about 75% or close to that, subsidies and plant and machinery from the central and state governments. The remaining is the investment that we made. For every rupee of capex spent, the potential for revenues between 1 to 1.5 rupee, and that would depend on what kind of work that we do. We have planned to do about 25% of our capacity towards Legacy product building, and then 75% towards advanced packaging because we do believe that in the near future, the demand for advanced packaging is going to go up, and that's also more margin accretive.
Being a very capital-intensive industry, we are very mindful of the fact that we should target for much higher Ebitda numbers. So, it will be overall value creative from the perspective of Ebitda and also, we hope to make it commensurate with our existing ROCs by making sure that we work on the upper band of revenues for this kind of, let's say, about 3,300 crores is the kind of capex and to begin with, and then, we should probably hit about 4,000, 4,000-plus crores of revenues. That would happen over the period between two to four years of FY26, fourth quarter, is the significant revenue portion, third quarter, of course we commence the operations and get things together. 2027-28-29-30 when we ramp up to the highest potential for this business.
Mr. Sampath, you mentioned that this was part of the facility will focus on advanced packaging, and part of it will contribute to your existing business, and it's going to also be margin accretive. You want to tell me, how much will it impact your current margins in the current business?
Jairam Sampath: So, these are especially advanced packaging OSAC with a far higher margin compared to our existing EMS business. The only cash there is to have a good set of clients so that we get reasonable revenue output and good capacity utilisation.
So broadly speaking, the margin will be significantly higher. Let's say the current business runs at about 15% and these margins could be 18%, 19% kind of EBITDA margins, maybe even higher because we consume more capital. So net, net, we'll be happy if this gives us early 20s in terms of ROC and the margins, of course, will be consequently, higher than the existing companies consolidated margins.
Yes, Mr. Sampath, your margins anyway are highest in the EMS space. I mean, this very few that come close to in terms of margin lucrativeness. In that sense, you said, what would be critical for this advanced packaging business to kick off is having clients and customers. Would existing clients be your potential clients with advanced packaging? Are you in conversation with potential clients because I'm assuming this would have been an idea that came to you because there was a demand or a need from the industry, right?
Ramesh Kunhikannan: This is not from our existing clients. We have been working with some clients to get there, and we have got good traction, and we will be there the moment our plant is set up. We have got good commitments from our clients for advanced packages.
Jairam Sampath: These are semiconductor companies who work in the new generation of technology areas, and they need some companies to help them with packaging, especially in the advanced packaging area.
Of course, for their traditional capacities for legacy set up all over South Asia, China and even Western world. But our target is to limit our exposure to legacy technologies to about 25% and remaining 75% we want to work in the newer generation of packaging, including some of the latest generation of wafers like Silicon Photonics and so on.
So, our endeavour is to make sure that we become one of the suppliers who can participate in the new generation of packaging technologies, which is currently the province of people in Taiwan and Korea and Japan and so on.
How big is the potential here? Mr. Sampath, I know there is enough and more competition outside the country, like you said, but what is the potential in this advanced packaging space? Highly margin creative, highly revenue creative and I mean those margins are fantastic, to say the least. But what is the size of the potentially talking about it, and how much market share do you see Kaynes own two to three years out?
Jairam Sampath: So even at the peak realisation of our revenues, we'd still be sub-billion dollars, which is a tiny portion of the market. Markets are pretty high. So from the perspective of it, it is similar to the EMS industry that we are facing. The markets are much, much larger than what capacities that we can actually offer. So from that perspective, I think demand will exceed supply, as far as advanced packaging and those kinds of areas are concerned.
Also, India is very much poised actually, if you talk about, say, the government's help in this entire regard, I think I'll request Ramesh Ji to talk about the help that the government is giving, actually, in terms of getting this entire thing off the ground.
Ramesh Kunhikannan: We should really thank the central government for sanctioning this project for Kaynes and having said that, this type of an industry can come up only with the government's help. If you see, globally, most of the countries' governments have pitched in, and this is exactly what our central government also has done.
Jairam Sampath: So in the next couple of decades, we have enough demand to go by. So we have to get our act together. Get the first machine, working, first line working, customer approvals. Then, of course, complete our plan, and then think about further validations.
I'll just quickly follow this up with two more questions. You know, your order book is extremely healthy. Your average inflow stands at 480-490 crores a month and also, the other thing that has stood out for us is your working capital days have dropped or you were operationally working on improving that at least up until the last quarter. Is there any risk for this new project coming on board, new businesses you know, contributing to your top line, your working capital days could be impacted. Also, I know you were sitting on your QIP funds that were raised, most of those funds will be utilised for these plants?
Jairam Sampath: Yes, I think from that perspective, we are now ready. There is no hitch in terms of company investment as well as subsidies. So, all has fallen into place and these businesses are a little more efficient than EMS business because the inherent varieties will be still smaller than our current EMS business and the number of customers also will not be proliferated here.
There are only maybe up to about 10 customers that we would have. So, from that perspective, the supply chain-related risks are minimal, to say the least, and the bulk of the material also is consigned to us by the semiconductor companies. So, from that perspective, the exposure that company has is only in the common raw material space, which is from the perspective, number of days, etc. It will be even better than what we have in the EMS industry.
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