Best Semiconductor Stock: Kaynes Technology vs CG Power

India majorly depends on imports to fulfil its semiconductor needs primarily due to the lack of semiconductor facilities in India.

However, this is going to change, and the Indian semiconductor industry is set to experience significant growth and development in the next few years.

The industry is expected to grow a compound annual growth rate (CAGR) of 16% between 2026 and 2029, to reach US$ 92 billion (bn) primarily due to strong domestic demand for electronic devices.

Apart from this, the government initiatives such as Product Linked Incentive (PLI) scheme, and subsidies from central and state governments is pushing companies to foray into semiconductor business.

Out of the many, two companies that ventured into the semiconductor business are Kaynes Technology and CG Power.

Both are well-established players in their respective fields, wiz electronics manufacturing and power and industrial solutions.

They now want to leverage their expertise and capitalise on the growth opportunities in the semiconductor industry.

Let's compare both companies across various parameters to see which company is better.

Business Overview

#Kaynes Technology India

Kaynes Technology was incorporated in 2008 and is a leading end-to-end and internet of things (IoT) solutions enabled integrated electronics manufacturing company.

Starting from conceptual design to process engineering, integrated manufacturing, and life-cycle support, it offers all solutions to its clients across various industries.

It specialises in delivering 'build to print' and printed circuit board assemblies (PCBA) to original equipment manufacturers (OEM).

The company also offers a wide range of solutions, including smart metering technology, smart street lighting, and IoT solutions for smart consumer appliances and devices for original design manufacturers (ODM).

Apart from this, it offers product design and engineering services to its clients.

At present, the company serves clients from various industries, including automotive, industrial, medical, railways, and defence.

Through its 100% owned subsidiary, Kaynes Semicon, which specialises in OSAT (Outsourced Semiconductor Assembly and Testing), it is building a semiconductor facility in Gujarat.

The facility will have the capacity to produce 6 million (m) chips per day and will cater to a wide range of industries, including industrial, automotive, electric vehicles (EV), consumer durables, and telecom.

It has already formed partnerships with key players in the semiconductor ecosystem, which will help accelerate growth.

#CG Power & Industrial Solutions

CG Power and Industrial Solutions has been part of the Murugappa Group since 2020. It is engaged in the design, manufacturing and marketing of products related to power generation, transmission, and distribution & rail transportation.

The company has two business divisions namely industrial systems, and power systems. The former caters to motors and drives, and railways, whereas the latter caters to power industry and is used in transformers switchgears and allied products.

CG Power and Industrial Solutions has recently entered into a joint venture with Renesas Electronics and Stars Microelectronics to establish an OSAT facility in India.

The facility is expected to manufacture 15 m chips daily and will focus on packaging, assembling, and testing semiconductor chips for various applications, including consumer electronics, automotive, industrial, and power sectors.

Particulars	Kaynes Technology India	CG Power & Industrial Solutions
Market Cap (in Rs billion)*	387.8	1,151.40

Source: Equitymaster|* as of 4^th December 2024

Between the two companies, CG Power has a higher marketcap of Rs 1,151.4 billion (bn) against Rs 387.8 bn of Kaynes Technology.

CG Power is also leading in terms of the order book, which was Rs 62 bn at the end of March 2024, as opposed to Rs 41 bn for Kaynes Technology.

The company also has a higher manufacturing capacity with respect to semiconductor chips (around 15 m chips daily as against 6 m of Kaynes Technology).

However, if we compare the performance of the companies on the stock market, then Kaynes Technology is leading with 150% return, as against 60% of CG Power.

Nevertheless, both the companies managed to beat the market index Nifty 50 which gave a return of 18% in the last one year.

#Revenue

Kaynes Technology's revenue's major contributor is through the printed circuit board assemblies, followed by the build to print division, and product design and engineering.

In the last five years, the company's revenue grew at a compound annual growth rate (CAGR) of 37.4% driven by strong demand especially from automotive, industrial, and railways sectors.

In addition, it has diversified clientele and built established relationships with them, which brings the company a lot of repeat business.

For CG Power, the majority of the revenue is derived from its industrial systems business, followed by power systems.

In the last five years, the company's revenue grew at a CAGR of 9.5%, driven by a strong order book spread across various segments, including motor, railways, transformers, and switchgear.

To add to this, the company's efforts to gradually ramp-up its capacity over the years has also helped CG Power build a strong order book.

Clearly, Kaynes Technology is leading with respect to revenue growth, but CG Power has a higher absolute revenue.

Revenue

Net Sales (in Rs m)	Mar-2020	Mar-2021	Mar-2022	Mar-2023	Mar-2024	5-Year CAGR
Kaynes Technology India	3,682	4,206	7,062	11,261	18,046	37.40%
CG Power & Industrial Solutions	51,099	29,640	54,835	69,725	80,460	9.50%

Source: Equitymaster

#Profitability

For Kaynes Technology, the EBITDA and net profit grew by a CAGR of 47.8% and 81.1%, respectively. This is primarily due to the company's focus on expanding its business in the high-margin print to build and ODM business.

However, it is important to note that the company is still deriving majority of its revenue from printed circuit boards assembly, which has lower margins, and low entry barriers.

Moreover, majority of its raw materials are imported which can affect the profit margins due to forex movements.

For CG Power, the EBITDA grew at a whooping CAGR of 70.8%, and the company managed to convert its net loss of Rs 13.2 bn to a profit of Rs 8.7 bn.

This is primarily because the margins of the power segment improved significantly on account of higher realisations, cost efficiencies, execution of high margin export orders, and a favourable product mix.

However, the margins of the industrial segment moderated due to pricing pressures.

Going forward, due to strong order book, and ramp-up in capacity, the margins are expected to improve.

Profitability

EBITDA (in Rs m)	Mar-2020	Mar-2021	Mar-2022	Mar-2023	Mar-2024	5-Year CAGR
Kaynes Technology India	443	461	993	1,813	3,126	47.80%
CG Power & Industrial Solutions	860	2,274	6,842	10,731	12,485	70.80%
PAT (in Rs m)	Mar-2020	Mar-2021	Mar-2022	Mar-2023	Mar-2024	5-Year CAGR
Kaynes Technology India	94	97	417	952	1,833	81.10%
CG Power & Industrial Solutions	-13,241	12,795	6,296	7,963	8,711	NM
Gross Profit Margin	Mar-2020	Mar-2021	Mar-2022	Mar-2023	Mar-2024
Kaynes Technology India	12.00%	11.00%	14.10%	16.10%	17.30%
CG Power & Industrial Solutions	1.70%	7.70%	12.50%	15.40%	15.50%
Net Profit Margin	Mar-2020	Mar-2021	Mar-2022	Mar-2023	Mar-2024
Kaynes Technology India	2.60%	2.30%	5.90%	8.50%	10.20%
CG Power & Industrial Solutions	-25.90%	43.20%	11.50%	11.40%	10.80%

Source: Equitymaster

#Debt Management

Both Kaynes Technology and CG Power are net debt-free companies.

Kaynes Technology has moderate debt repayments for 2025 and 2026 of around Rs 42 m and 78 m respectively, which can be easily supported with the cash available with the company. As of September 2024, the company has a cash balance of Rs 12 bn.

In the next four years, the company plans to incur sizable capex for its semiconductor and printed circuit board assembly business.

The total project cost of the OSAT and circuit board business is Rs 33 bn and Rs 14 bn respectively. The first phase of the projects is expected to be complete by 2029 and will cost approximately Rs 13 bn and 7 bn respectively.

Recently, the company raised funds through qualified institutional placement (QIP), which will fulfil the initial requirement. The subsequent requirement will be funded through government subsidies and debt.

Hence, the company's debt levels might go up in the future.

CG Power is also a debt-free company with no fixed financial obligations. It has cash reserves of Rs 14.4 bn as of March 2024 which will be used to fund all its capex requirements.

The total cost of setting up its OSAT facility in Gujarat over the period of five years Rs 76 bn. It plans to fund the entire capex through internal accruals and through central and state government subsidies.

Debt Management

Debt to Equity Ratio (x)	Mar-2020	Mar-2021	Mar-2022	Mar-2023	Mar-2024
Kaynes Technology India	0.1	0.1	0.1	0	0
CG Power & Industrial Solutions	-0.3	-6.8	0.3	0	0

Source: Equitymaster

#Financial Efficiency

The two ratios that help in assessing the financial efficiency of a company are return on capital employed (RoCE) and return on equity (RoE).

The three-year average RoE and RoCE for Kaynes Technology are 12.6% and 21.8%, respectively. On the other hand, CG Power's RoE and RoCE averaged 45.9% and 53.8%, respectively, in the last three years.

Strong order books and high-profit margins have helped CG Power maintain its high-efficiency ratios.

Financial Efficiency

ROCE	Mar-2020	Mar-2021	Mar-2022	Mar-2023	Mar-2024
Kaynes Technology India	32.00%	23.10%	37.10%	16.70%	11.50%
CG Power & Industrial Solutions	74.70%	228.80%	64.60%	57.70%	39.20%
ROE	Mar-2020	Mar-2021	Mar-2022	Mar-2023	Mar-2024
Kaynes Technology India	9.10%	7.00%	20.60%	9.90%	7.40%
CG Power & Industrial Solutions	67.20%	-1047.10%	64.10%	44.60%	29.10%

Source: Equitymaster

#Dividend

Kaynes Technology hasn't paid dividends to their shareholders. However, in the past two years, CG Power has paid two dividends to its shareholders. The average dividend per share is around Rs 1.4, and the average dividend payout and dividend yield are 25.5% and 0.3%, respectively.

The company has strong cash reserves, which indicates that it could also pay a dividend in the financial year 2025 despite high capex investment.

Kaynes Technology, on the other hand, has planned significant capex for the next five years and may not pay any dividends to its shareholders in the medium term.

Dividend

Dividend Per Share (Rs)	Mar-2020	Mar-2021	Mar-2022	Mar-2023	Mar-2024	5-Year CAGR
Kaynes Technology India	0	0	0	0	0	#DIV/0!
CG Power & Industrial Solutions	0	0	0	1.5	1.3	NA
Dividend Yield	Mar-2020	Mar-2021	Mar-2022	Mar-2023	Mar-2024
Kaynes Technology India	0.00%	0.00%	0.00%	0.00%	0.00%
CG Power & Industrial Solutions	0.00%	0.00%	0.00%	0.50%	0.20%
Dividend Payout Ratio	Mar-2020	Mar-2021	Mar-2022	Mar-2023	Mar-2024
Kaynes Technology India	0.00%	0.00%	0.00%	0.00%	0.00%
CG Power & Industrial Solutions	0.00%	0.00%	0.00%	28.80%	22.20%

Source: Equitymaster

#Valuation

A company's valuation can be assessed through the price to earnings (P/E) and price to book value (P/B) ratio.

These ratios help us estimate the intrinsic value of a company. They also help us analyse whether a company's shares are overvalued or undervalued when compared to its peers.

The P/E and P/B ratios of Kaynes Technology are 168x and 15.4x, respectively. For CG Power, the ratios are 130.5x and 33.1x, respectively.

When compared to the industry average and their three-year average, both companies are overvalued.

Valuations	Kaynes Technology India	3-Year Average	CG Power & Industrial Solutions	3-Year Average
PE (x)	168	103.4	130.5	84.3
PB (x)	15.4	8.1	33.1	25.8

Source: Equitymaster

Which Semiconductor Stock is Better: Kaynes Technology or CG Power?

Kaynes Technology is leading in revenue growth and profit margins.

However, in terms of absolute revenue, profit growth, financial efficiency, and valuation, CG Power is ahead of Kaynes Technology.

Despite having a strong international presence, CG Power derives only 10% of its revenue from exports. However, since financial year 2024, it has focussed on increasing its export revenue share to 20% in the next 4-5 years.

Apart from expanding its existing business, the company recently forayed into the semiconductor business. It is setting up a semiconductor plant in Gujarat with a capacity to produce 15 m chips daily to cater to various industries.

This facility will be set up in partnership with Renesas Electronics Corporation, Japan and Stars Microelectronics.

Kaynes Technology, on the other hand, is a major electronics manufacturing player with end-to-end solutions.

It has a leading presence in build box and printed circuit board assemblies. The company is currently investing in expanding its printed circuit board assemblies business.

An investment of Rs 14 bn is expected to establish new manufacturing facilities for the printed circuit board assemblies business.

Apart from this, it recently ventured into semiconductor business and plans to invest Rs 33 bn in capex to set up a semiconductor facility in Gujarat.

This facility will have the capacity to manufacture 6 m chips per day and will cater to industrial, automotive, electric vehicles (EV), consumer durables, and telecom sectors.

Given the rising demand for semiconductor chips globally, this is an excellent opportunity for both companies to grow their business.

To add to this, the government's product linked incentive (PLI) scheme, its protection measures in the form of import duties to safeguard local players, and strong consumption of consumer durables is also pushing the growth of the semiconductor industry in India.

However, it is important to note that the semiconductor industry is highly competitive and already has global players with leading market shares.

In addition, the companies are just building their semiconductor facilities and could face delays in completion, and they may not realise revenue as per their initial plan.

Hence, it is very important to do thorough research before jumping into any financial decision.

Investors should also consider corporate governance as one of the criteria for due diligence before considering an investment.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here.