Exclusive: Kaynes Tech plans semiconductor subsidiary IPO in 5 years

Mysore-based Kaynes Technology, an end-to-end IoT-enabled integrated electronics manufacturing solutions provider, is setting its sights on listing its semiconductor subsidiary, Kaynes Semicon, in the next five years. Established in March 2023, Kaynes Semicon is among the key beneficiaries of the Government of India's Semiconductor and Display Fab Scheme. As part of this initiative, the company has secured government approval to establish an OSAT (Outsourced Semiconductor Assembly and Test) facility in Sanand, Gujarat, with an initial investment of ₹3,300 crore.

Raghu Panicker, CEO of Kaynes Semicon, told Fortune India, “With a legacy spanning over three and a half decades in electronics manufacturing services (EMS), we successfully raised capital through an IPO two years ago, and our stock has been performing exceptionally well since. Post-IPO, our focus has been on expanding our electronics manufacturing services capabilities, which includes geographic diversification with a new plant in Jammu and a ₹350 crore investment in Madhya Pradesh. In electronic manufacturing services, backward integration is the key, and two critical components for this are semiconductor components and bare board PCBs.”

To enhance its capabilities in backward integration, Kaynes Technology established two dedicated subsidiaries: Kaynes Semicon, focused on backend semiconductor manufacturing providing third-party services for the assembly, packaging, and testing of semiconductors, and Kaynes Circuits, specialising in bare-board PCB production. “We decided that we will put these two plants, and that is when we started to work with the Ministry of Electronics & IT (MeitY).”

Under the India Semiconductor Mission, Kaynes Semicon proposed the establishment of a 50-acre OSAT facility in Sanand, Gujarat with an investment of ₹3,300 crore, with 70% of the funding coming from government support, shared between the central and state governments. “We successfully raised the remaining 30% of the funds in December last year, and with full funding in place, we are now moving forward with the construction of the facility,” adds Panicker.

Why OSAT

Kaynes Technology decided to venture into the OSAT space because it aligns perfectly with the company’s service-driven DNA. “As a services company, our core strength lies in providing manufacturing solutions rather than designing products. That's why we chose OSAT, as it involves semiconductor assembly, testing, and packaging—all services that fit within our expertise in electronics manufacturing," explains Panicker. This focus on OSAT allows the company to expand its semiconductor capabilities without venturing into the capital-intensive and high-risk arena of chip design or chip fabrication.

Kaynes is also leveraging its relationships with existing clients and industry knowledge. “We have a strong understanding of our end customers—be it in the automotive, medical, or railway sectors. This insight is crucial in the OSAT space, where knowing the components, their use, and challenges is key. For instance, when dealing with power MOSFETs in electric vehicle power modules, we already have the market knowledge and customer relationships to identify cost-saving opportunities,” says Panicker.

The deep industry understanding can help Kaynes work closely with component manufacturers, like Infineon, to drive efficiencies. "For instance, if we're using Infineon power MOSFETs, we can discuss the possibility of manufacturing them locally, reducing costs and passing on those savings to our customers—making the product more competitive while maintaining the same quality," he explains. This approach, combined with the 70% government subsidy, will help Kaynes in offering cost-effective solutions.

To begin with, Kaynes Semicon is focusing on testing and packaging higher-geometry semiconductors, specifically those at 28 nanometers and above. While wire-bond technology packaging is typically used for 28 nm, the smaller geometry sizes are accommodated through BGA (Ball Grid Array) and Flip Chip packaging. In a significant move, Kaynes has already signed a deal with Singapore-based fabless startup Lightspeed Photonics, to expand its capabilities in this area.

The company has entered into strategic partnerships with Malaysia-based Globetronics, Japan’s AOI, and U.S.-based Mixx Technologies. The arrangement with Kaynes' technology partners is structured in a way that they will take a portion of the offtake from Kaynes' OSAT site. In addition, these partners have the opportunity to bring in their own customers, for whom Kaynes is offering equity stakes as part of the collaboration.

IPO

Along with OSAT, other revenue generating business units under Kaynes Semicon will be packing R&D, automated test equipment, reliability and failure analysis, system solutions, and original design manufacturing. Kaynes Semicon aims to break even within two to two-and-a-half years. Over the next five years, the company expects that nearly 25% of Kaynes Technology’s earnings will come from its semiconductor subsidiary. “ As part of this vision, we are planning to take the subsidiary public in next five years,” shares Panicker.

Looking ahead, Kaynes is exploring opportunities for further semiconductor backward integration, beginning with OSAT operations and potentially expanding into the foundry business in the future. "A semiconductor fab requires much more discipline than OSAT; it involves a larger understanding of how fabs operate, with less manpower and more equipment. As a company, we're not geared up for that just yet," he said. However, Panicker hasn't ruled out the possibility of venturing into chip fabrication. "After a few years, once we've mastered assembly, testing, and packaging, chip fabrication could be a natural progression. But for now, our focus is solely on OSAT."

On choosing Gujarat over Telangana

Initially, Kaynes Semicon had shortlisted Telangana as the location for its first OSAT facility, leveraging its strong presence in southern India. However, after further evaluation, the company chose to establish the facility in Sanand, Gujarat—a region quickly emerging as a semiconductor hub. Micron’s ATMP (Assembly, Test, Mark, and Pack) facility and CG Power’s OSAT plant are also being built in Sanand. “While Telangana offered strong incentives and support, the ecosystem in Sanand tipped the scales in its favour. With two similar projects already underway, the availability of critical raw materials, gases, and an established supply chain in one location, it made operational alignment and future scalability much more feasible,” explains Panicker.