Kaynes' New Acquisition Bodes Well For Smart Meter Order Book, Say Analysts

Kaynes Technology India Ltd. is set to benefit significantly from its acquisition of the smart metering business, Iskraemeco India, with analysts highlighting long-term growth prospects and improved order books. 

According to Nomura, the acquisition brings visibility of more orders for Kaynes in the long term, providing scale benefits in manufacturing and access to other meter technologies like gas and water meters. While Jefferies expects the acquisition to bolster Kaynes' scale, product line, service offerings, and customer reach, making the smart metering product margin-accretive. 

On Sept. 28, the company announced that it will acquire Iskraemeco India Pvt. from Iskraemeco Holding Switzerland AG and Iskraemeco Merjenje IN Upravljanje Energije for Rs 42.98 crore. The acquisition aims to enhance Kaynes' smart meter solutions and services portfolio.

Iskraemeco India, which was founded in October 2019, is involved in the supply, installation, operation, and maintenance of smart meters. In fiscal 2024, the company reported a revenue of Rs 65.42 crore, all derived from smart meter sales.

Here is a look at what analysts have to say about the acquisition.

Nomura expects the acquisition to bring more orders for Kaynes in the long term, providing scale benefits in manufacturing and access to other meter technologies like gas and water meters. The agreement with Iskraemeco's parent entity ensures technology support, and Kaynes can now book 100% of order revenues compared to around 70% previously, the brokerage said.

Kaynes aims to provide software maintenance and installation services, lower its working capital cycle to less than 90 days, and target export markets under the Iskraemeco brand.

The brokerage expects the smart meter business to contribute approximately 10% to Kaynes' consolidated revenue in fiscal 2025, with potential growth to be around 15% of revenues later. This promoted Nomura to maintain its 'buy' rating on the stock with a target price of Rs 5,969 apiece, implying an upside of 14.2% from the previous close.

Kaynes recently inaugurated a smart meter plant with a capacity of about 4 million units, which can be scaled up if needed. Nomura projects a strong 64% compounded annual growth rate in Kaynes' industrial segment revenue from financial year 2024-27, with smart meters playing a significant role.

The brokerage expects overall revenue and Ebitda CAGRs of 56% and 58%, respectively, over fiscals 2024-27, with Ebitda margins of 14.3-14.7%, resulting in a 57% earnings per share CAGR.

Despite Kaynes' strong niche positioning, Jefferies has a 'hold' on the stock due to its rich valuations with a target price of Rs 4,540 apiece, implying a downside of 13%.

Iskraemeco India's fiscal 2024 sales stood at Rs 65.4 crore, a 63% year-on-year growth with a two-year sales growing at a compound annual growth rate of 109%, Jefferies said. The acquisition will bolster Kaynes' scale, product line, service offerings, and customer reach, making the smart metering product margin-accretive. Kaynes aims to become the largest domestic smart metering manufacturer after the acquisition.

The note also mentioned a healthy industry opportunity in the smart metering segment, with approximately 110 million meters already awarded and another 110 million meters yet to be awarded.

Iskraemeco currently holds orders from PGCIL and the Gujarat government for 3.5 million meters, as well as from the West Bengal government. Kaynes also foresees export opportunities in the smart meter segment in the long term.

Jefferies estimates a 42% sales CAGR and a 48% EPS CAGR for Kaynes in fiscal 2024–27, driven by an industry growth rate of over 30%. It expects core operating profit margins to remain strong at around 14%, while working capital is expected to improve but remain above 100 days.

Shares of Kaynes Technology fell as much as 5.35% during the day to Rs 4,778.40 apiece on the NSE. It was trading 3.90% lower at Rs 4,854.60 apiece, compared to a 0.30% decline in the benchmark Nifty 50 as of 11:49 a.m. 

The stock has risen 84.22% in the last 12 months and 85.33% on a year-to-date basis. The total traded volume so far in the day stood at 0.9 times its 30-day average. The relative strength index was at 39.21.

Fourteen out of the twenty-three analysts tracking Kaynes Technology have a 'buy' rating on the stock, six recommend a 'hold' and three suggest a 'sell', according to Bloomberg data. The average of 12-month analyst price targets implies a potential downside of 1.3%.