- 8/25/2023
#KaynesTechnology signed MoU for Rs 3,750 crore to set up #semiconductor assembly & testing facility in Karnataka.
MD Ramesh Kunhikannan and CEO Rajesh Sharma share more details. #BQLive
MD Ramesh Kunhikannan and CEO Rajesh Sharma share more details. #BQLive
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00:00 a spectacular set of numbers.
00:01 But post that, they've come out with a very interesting
00:04 announcement yesterday that they've
00:06 entered into an MOU with the Karnataka government
00:09 to set up a semiconductor assembly and testing facility,
00:12 also a printed circuit board manufacturing plant.
00:14 In addition to that, and the fact
00:16 that this announcement mentions that the MOU could
00:20 be worth 3,750 crores of investments, I believe--
00:24 and I'll get that clarity from the company--
00:26 there's also an investment meet with FIIs
00:28 and some fairly high-profile FIIs in the likes of Schroder,
00:32 GIC, AI, and BlackRock.
00:34 So it's my absolute pleasure to welcome in on the show
00:38 Mr. Ramesh Kundikandan, who is the managing director of Cairns,
00:40 and Mr. Rajesh Sharma, the CEO of the company.
00:42 Gentlemen, thanks for taking the time out.
00:45 You're welcome.
00:45 Thank you so much for having us on the call.
00:47 The pleasure is ours.
00:48 Thank you.
00:49 First, a clarification.
00:50 Tell us about this MOU, because there
00:51 are two or three subsets within this announcement.
00:54 What is this about?
00:57 See, on the OSET we wanted to do in the country,
01:02 so we have approved the government.
01:05 And these investments we will be doing in three phases.
01:10 First phase of around 1,500 crores,
01:12 and the other two phases will be the balance.
01:16 Same with the PCB.
01:18 We are immediately coming out with the 400-crore investment
01:21 and balance in the second phase.
01:25 Now, India has just got a lot of imports of PCBs going on
01:30 in the country from China.
01:33 Now, before it becomes a controlled affair,
01:38 we would like to have our own plan
01:40 so that the electronic industries can benefit,
01:43 and we as a company can go to the next step.
01:45 This is the plan.
01:47 Sorry, you want to add something, Mr. Sharma?
01:49 Yeah, and if you'd like to recollect from our RSP
01:53 and the DRSP, we had talked about potentially exploring
01:57 our backward integration.
01:59 And in line with that, we always had
02:01 in mind of putting up a bare-board PCB plant,
02:04 as well as exploring on the OSET facility.
02:07 And so it's almost been a year since we got listed last year.
02:12 So these things are getting manifested now,
02:15 and we are looking at this integration.
02:17 OK.
02:18 First, let me get the amounts out of the way,
02:20 and then I'll come to the market size and what will you do.
02:23 So the number 3,750 crores is large,
02:26 but I understand that's for the whole project.
02:28 You are doing it in phases.
02:30 Still, 1,000 or 1,500 crores and 400 crores,
02:34 respectively, that I heard sir say, is not a small amount.
02:38 How does this come?
02:39 Internal accruals, debt, equity, or a mixture of all the three?
02:45 As far as PCB is concerned, that project money
02:48 we have already raised in our initial fund raise itself.
02:54 Got it.
02:54 And for this, we will be raising.
02:56 But for a semi-con industry, government subsidies
02:59 are also on a pari passu basis.
03:02 So out of 1,500 crores, we will be
03:04 eligible for anything between 600 to 700 crores
03:07 from central government.
03:08 State also will be giving.
03:10 So totally around 70% will be government's share,
03:13 and balance will be companies' share.
03:15 Which shouldn't be too difficult an amount for you to raise.
03:18 I mean, whether you do a debt or equity, right?
03:20 I'm guessing it's not internal accruals which will fund this.
03:23 We will be raising this.
03:25 And any thoughts about whether it's equity linked or debt
03:28 amount that you will raise?
03:30 It could be a combination of both.
03:32 It could be a combination of both.
03:33 OK.
03:34 Sorry, I was interested because you have successfully
03:36 brought down your debt equity ratio also in the last six
03:39 months post IPO.
03:40 And hence, even that is a comfortable situation.
03:42 So I was just trying to understand
03:43 what is the preferred choice.
03:44 That's why.
03:45 You should leverage it the best, considering
03:47 you have a good debt equity ratio now.
03:49 You should be able to derive a good leverage right now.
03:51 OK, great.
03:52 But thanks for this clarification
03:53 because not everybody is aware of the fact
03:55 that there are these subsidies attached to this as well.
03:58 Now, I would love to understand what is it that this does.
04:02 Because I heard you say that there
04:04 is backward integration which has been in the plans
04:06 as per the DRHP and the RHP.
04:08 Excuse me for not going through them before the interview.
04:11 But with the presumption that some of this
04:13 is backward integration project as well,
04:15 what about the semiconductor assembly and testing facilities?
04:18 Is that also backward integration linked?
04:21 Or a lot of this will also be for external markets
04:23 or external customers?
04:26 Semicon is not a backward integration.
04:28 Semicon is an assembly by itself.
04:30 Got it.
04:31 So here we are partnering with the technical partnering
04:34 with the company.
04:35 We will let you all know shortly.
04:37 And with that partnership, we will
04:39 be growing to the next level.
04:42 For India's growth and government of India's plan,
04:45 semiconductor is inevitable.
04:47 And I'm sure and certain not only we,
04:49 many companies will come in.
04:51 If you see, Taiwan has grown, China has grown,
04:55 Malaysia has grown.
04:56 All of them have grown through OSATs being present there.
05:00 So I'm sure and certain India also will grow like this.
05:03 And we have a couple of customers
05:06 who have promised us that we will have the business.
05:11 OK.
05:12 The market for this is obviously very large.
05:15 And I'm just trying to understand the competitiveness
05:17 of a made-in-India product as you would have envisaged
05:21 in your business plan versus what could be available
05:23 currently in the market.
05:25 Any things that you can share with us?
05:28 Today, not even 0.2% is produced in India.
05:32 Of course.
05:34 So today, entire components are coming from outside.
05:39 We are able to visually see a plan for sales
05:43 to go up to 2,000 crores with this investment coming in.
05:46 No, which is fine, sir.
05:50 I was just also trying to understand
05:52 that a made-in-India product that you
05:54 are thinking of putting out whenever
05:56 this plant comes on stream, how would it
05:58 be on the cost competitiveness front versus something
06:02 that is imported currently?
06:04 We are able to do whatever current prices prevailing
06:09 in Malaysia and China and Taiwan.
06:13 And I'm sure and certain going forward
06:16 with our skilled force in India, we
06:18 should be able to bring it down.
06:20 OK, well, I personally wish you all the best for that.
06:22 And I'm sure everybody else does too,
06:23 because we definitely need this.
06:24 So tell us a bit about now the timelines for these.
06:27 I mean, how-- and just the clarification again,
06:31 for the printed circuit board manufacturing as well,
06:33 is that entirely for as a backward integration
06:36 thing to be used further?
06:38 Or do you think some bit of it will be outside?
06:39 And part two of my question, what
06:41 are the timelines for each of these
06:44 to get set up and get commissioned and come
06:47 into your numbers at some point of time in '25, '26,
06:50 as the case may be?
06:53 First question first.
06:55 See, PCB as a fabrication, we will be doing--
07:02 not only for us, we will be doing for the country's
07:06 requirement.
07:08 I'm sure and certain we have ambitious plans
07:11 with our customers to take it to exports also.
07:13 But however, this country's requirement itself, to me,
07:16 it will be a large requirement.
07:19 So first two years, we will not be aiming at that.
07:23 This plan will take anything between 12 to 15 months
07:26 to start production.
07:29 We wanted to start as early as next quarter.
07:33 And when it comes to OSAT, my feeling
07:37 is we wanted to start construction in next year
07:43 two to three months.
07:45 We are ready with our plan.
07:46 We are in the final negotiation with our partners
07:50 on the technical collaboration.
07:52 Once that is through, we'll put the plans together
07:55 and then construct.
07:57 Rajesh, you want to add something?
07:58 Yeah, so certainly, as Ramesh said,
08:01 it's not completely capital consumption on the PCB side.
08:04 So there will be external customers.
08:06 Could be both within India and outside of India
08:08 as well for the PCB.
08:10 And as the MOU takes the shape of a definitive agreement
08:14 with the state authorities and the land allotment comes in,
08:18 certainly our plan is that between the next nine
08:20 to 15 months or 18 months, the production
08:22 should be starting on both the parts.
08:25 So safe to assume that latter half of FY25,
08:30 we'll see both of these units commissioned and producing
08:33 and possibly the full benefits coming into FY26.
08:38 Fair assessment?
08:39 That's right.
08:39 Yeah, second half of FY25 and early 26
08:43 should be the full benefits.
08:44 Got it.
08:46 Maybe it's preempting too much, but I'm just
08:48 trying to understand when companies like yours
08:50 think of these manufacturing facilities,
08:52 you think of a line, and then you
08:54 think of what is the possibility for future lines as well.
08:57 So I'm just trying to understand,
08:58 are you thinking of those lines already
09:00 that you set up line one of production
09:02 right now with these investments and this MOU
09:04 and then have the ability and the capacity
09:07 to add up multiple lines, if not for the PCB,
09:10 then for the semiconductor assembly unit?
09:13 Yeah, for both it is true, Sardar.
09:15 Actually, that's what happens.
09:16 We start off the first line, start the production,
09:19 start getting the validation and qualifications of the line.
09:22 And as the customers start trickling in,
09:24 the next lines get added to the project.
09:25 And that is why it's phased out, as you say, phase one
09:28 and phase two.
09:29 That is the whole idea that we start
09:30 deriving the benefit of the investment
09:32 as quickly as we get into that.
09:34 Got it.
09:35 When I was speaking to your CFO a few days back,
09:39 he was confident about the quantum of growth rates
09:44 that are there for the industry and for your company,
09:47 not just for the next five years,
09:48 but arguably for the next multiple years.
09:50 Now I'm just trying to understand,
09:52 is all of this a part of a pre-NVCH design of what
09:55 will add to growth, or these investments
09:58 and the outcome of these investments
10:00 add to the earlier guided growth numbers
10:04 that you might have given?
10:07 So I think what Jairam would have spoken
10:10 in the earlier conversation with you,
10:12 those were plans more that we had for the EMS or the ESDM
10:16 business line.
10:17 So these are certainly bolt-ons or add-ons to the plans
10:21 that we are doing.
10:21 They seem to be much larger than just bolt-ons, to be honest,
10:24 and which is why I was inquisitive.
10:26 OK.
10:28 So this is one.
10:29 But now we're fine.
10:29 Companies like us are able to bring in all these investments
10:34 because of the country's requirement as such
10:38 has gone up, as well as the government support
10:41 has been very good.
10:42 So otherwise, setting up Semicon is not viable at all.
10:47 So this government support has really helped companies
10:51 like us to get there.
10:53 Got it.
10:54 Last couple of questions.
10:55 Since the men who are driving the business are with me today--
11:00 and I ask this to the CFO, of course,
11:01 but I would love to understand from both of you.
11:03 How do you see the next decade?
11:06 Everybody, every brokerage note that I read,
11:09 every fund manager that I talk to
11:11 is pretty gung-ho about the opportunity
11:14 size of the EMS space.
11:16 You guys are doing that.
11:17 You're doing some fairly niche projects,
11:20 as well, if I can call them that.
11:22 How do you foresee the better part of this decade
11:25 or whatever time frame that you can talk to me about
11:28 for your space and for Keynes within that?
11:30 So certainly, as Zaid has also been talking,
11:39 the overall opportunity for the electronics manufacturing--
11:43 and I would say overall manufacturing.
11:45 Certainly, our interest is in electronics and EMS space.
11:48 So there is a lot of impetus that has gone in.
11:50 And the country-- India is getting
11:52 showcased at the global platform,
11:55 largely on the manufacturing side.
11:57 So this opportunity and overall consumption
12:00 being going up across the world on the electronics goods,
12:04 as well, and within India, as well,
12:06 that opportunity being very large.
12:09 And whatever is the global landscape
12:11 on the geopolitical situation, whatever
12:14 is getting spanned out over the last couple of years,
12:16 is going to yield results over the next seven,
12:19 two, 10 years, certainly.
12:20 And I certainly emphasize that we'll
12:23 overlook the decade following this decade, as well.
12:27 So the overflow certainly will be flowing
12:30 beyond this decade itself.
12:32 So we certainly look at that being
12:35 more rapid in the years to come.
12:38 More rapid in years to come.
12:39 OK, that's interesting.
12:41 As global requirements are also going up
12:44 because of the geopolitical situations,
12:47 more and more manufacturing should
12:49 come to countries like us.
12:50 Of course, there is competition.
12:52 But we have to all look at how to improve efficiencies
12:55 and gear up to meet the requirements.
12:58 So that is inevitable.
13:00 We have to do it if we want to grow.
13:02 So I'm very sure and certain the people force which
13:06 we are having, the company as such,
13:10 is geared up for that.
13:11 And the customer also are increasing.
13:14 Got it.
13:15 My final question, gentlemen, and that is--
13:17 sorry, Mr. Sharma, did you want to make a point?
13:21 Yeah, I just wanted to add on with the successful launch
13:24 of Chandrayaan-3.
13:26 And you must have been hearing about the kind of opportunities
13:30 that brings to Indian space market itself.
13:33 Already, we have been quite a leader
13:34 in launching a lot of satellites for other nations.
13:37 So I think with that successful launch of Chandrayaan,
13:40 we did play an active role in Chandrayaan-3.
13:44 We had our boats part of Chandrayaan-3
13:46 and landed along with the lander on the moon's surface now.
13:51 So overall, the opportunity for the complete electronic space,
13:56 India has been very looked at as a very active and innovative
14:00 partner today.
14:01 So that certainly will give an opportunity
14:03 for players like us.
14:05 And certainly, for us to have that growth opportunity
14:08 in the industry.
14:09 May I ask, actually, how many facets of the opportunity--
14:15 of the products opportunity that you have
14:18 or that is there in the market have you exhausted?
14:21 And how many newer avenues within the EMS space
14:24 can you go to over the course of the next three, four, five
14:26 years?
14:27 Because there are some companies who believe,
14:28 let me do deep specialization.
14:29 Let me stick to two or three or four products
14:32 and go very deep in them and keep on mining that.
14:34 And some companies who believe that,
14:36 let me increase the breadth.
14:37 I'm just trying to understand, how would you approach this?
14:41 We have our internal mining as a process.
14:44 Existing customers, we wanted to increase our market share.
14:48 But having said that, we also have newer plans.
14:54 We are, as per plans, whatever we have discussed in the past,
14:58 we are so far going as per plans.
15:00 We are increasing our team size to handle this.
15:05 And so far, it is going good.
15:07 That's right.
15:08 And just to add to what Ramesh has said,
15:11 see, we are a little bit of disruptive thinking people.
15:14 And we just don't believe in going deep dive
15:17 into a single segment.
15:19 We are looking at more and more diversification
15:22 across the verticals that we have been catering to.
15:25 Certainly, increasing the share of all
15:27 of our existing clients, existing product lines,
15:31 but also mining and hunting for more customers,
15:35 more segments or verticals that we can look at.
15:38 And certainly, this has been the philosophy of the company
15:42 right from the beginning, that we
15:44 attract businesses which are more profitable in nature
15:48 than just catering to the business lines.
15:50 So we are looking at both going deep and going wide
15:53 at the same time.
15:54 Got it.
15:55 Good to know that.
15:56 My final question, aside of this announcement
15:59 that you've done yesterday, there is also
16:01 a parallel announcement around meetings
16:03 with some fairly large global investors.
16:08 Now, I'm trying to understand, what is this interest
16:10 from global investors for the EMS space and your company?
16:13 And does this coincide with your fundraise as a planned event?
16:18 Or is this merely a coincidence?
16:21 It is a coincidence.
16:22 We are doing it as a routine matter.
16:28 But however, we will be coming with a concrete plan
16:31 now to raise some funds.
16:33 Got it.
16:34 Got it.
16:35 Gentlemen, congratulations on this.
16:37 Thank you for talking to us today
16:39 and giving us these details.
16:40 Lovely talking to you.
16:41 And all the best for all of these
16:43 and for the length and breadth of the different plans
16:46 that you have.
16:48 Thank you very much.
16:50 And we really enjoyed your discussion.
16:54 Thank you so much.
16:55 It was, I'm sure, the same for us and our viewers.
16:57 Much appreciate your time.
16:58 Viewers, thank you so much for tuning in.
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