Morgan Stanley Builds A Bull Case For Kaynes Technology On Strong Sectoral Tailwinds
Government approval for Kaynes Technology's semiconductor plant paves the way for the company to enter into chipmaking value chain, said Kotak Institutional Equities.
Government approval for Kaynes Technology India Ltd.'s plan to set up a semiconductor plant is positive for the company. Delay in acquiring authority's approval has been a subject of concern for the company in recent past, Morgan Stanley said in a note on Monday.
The brokerage maintained an 'overweight' rating on the stock with a target price of Rs 3,845 per share, which implied a 17.54% downside from Monday's closing price of Rs 4,662.65 apiece.
The brokerage attributed the option value from outsourced semiconductor assembly and test venture for its bull case for Kaynes Technology. It sees 35% probability of a bull case, 60% base case, and 5% bear case.
Morgan Stanley gave high weightage to bull case scenario, compared to bear case because of strong sectoral tailwind as the government continued to push for electronics manufacturing in India.
This approval paves the way for Kaynes Technology to enter into semiconductor value chain. In near term, the focus should be on ramping up execution, Kotak Institutional Equities said in a report on Tuesday.
Kotak Institutional Equities raised its earning per shares estimates by 1%, estimating a slight pick up in the company's OSAT execution. The brokerage retained a 'buy' rating with a target price Rs 4,950 per share, compared to Rs 4,650 earlier, which implies an upside of 6.16% from the previous close.
For medium term, focus for Kaynes Technology should be on shifting revenues toward advance packaging solution, according to the research firm.
Morgan Stanley Sees These Upside Risks
Faster-than-expected client additions across verticals.
Robust margin expansions.
Expansion in export markets.
Faster improvement in working capital cycle.
The Union Cabinet of India, chaired by Prime Minister Narendra Modi approved Kaynes Technology's proposal to set up Kaynes Semicon Pvt., in Sanand, Gujarat 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, the filing said. Kotak Institutional Equities expects commercial production to start in the second quarter of financial year 2026.
Morgan Stanley Sees These Downside Risks
Slower execution on capex impacts growth.
Further elongation of working capital days.
Growth in newer segments is slow/margin-dilutive.
Capital allocation towards OSAT and bare board PCB manufacturing is Return on Capital Employed dilutive over medium term.
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Shares of Kaynes Technology India Ltd. rose as much as 8.31%, the highest level since Aug. 27. They pared gains to trade 5.52% higher at Rs 4,919.95 per share as of 10:13 a.m., compared to 0.02% decline in the NSE Nifty 50.
The stock has risen 149.00% in 12 months, and 88.46% year-to-date. Total traded volume so far in the day stood at 15 times its 30-day average. The relative strength index was at 59.26.
Three analysts tracking the company recommend a 'hold', according to Bloomberg data. The average 12-month analysts' consensus price target implies a downside of 35.6%.
