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On Monday, Morgan Stanley (NYSE:MS) revised its stance on Kaynes Technology India Ltd (KAYNES:IN), downgrading the stock from Overweight to Equalweight and adjusting the price target to INR 6,155.00 from the previous INR 6,633.00. The modification in rating and price target reflects a recalibrated sum-of-the-parts (SOTP) valuation by the firm.
The new SOTP valuation of INR 6,155 is based on several factors. Firstly, the core Electronics Manufacturing Services (EMS) segment of Kaynes Technology is now valued at INR 5,132, down from INR 5,810. Morgan Stanley has reduced its earnings forecast by 11-12% for the fiscal years 2026-2027, aligning with the revenue guidance provided by the management for fiscal year 2026. The Residual Income (RI) model remained unchanged in its long-term assumptions, but valuations were rolled forward to fiscal year 2027 from 2026, and the cost of equity was adjusted to 13.8% from 13%, marking to market the risk-free rate and beta. This adjustment implies a 65x Price-to-Earnings Ratio (PER) on the fiscal year 2027 estimates.
Additionally, the valuation of new business segments has been updated. The Outsourced Semiconductor Assembly and Test (OSAT) business is now valued at INR 707, up from INR 594, and the bare Printed Circuit Board (PCB) segment at INR 317, increased from INR 228. These segments are being valued using a Discounted Cash Flow (DCF) method, which is deemed more appropriate due to the involvement of a one-time government capital subsidy.
Morgan Stanley maintains a 100% probability weight to the base case while arriving at the new price target. This change in valuation and rating is a direct response to the updated financial projections and market conditions as interpreted by the analysts at Morgan Stanley. The firm’s revised outlook on Kaynes Technology’s stock is based on these detailed financial models and market assessments.
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