Kaynes Technology shares fall 3%: Strong execution in Q1, but working capital days a key concern

Shares of Kaynes Technology tumbled as much as 8.33% to ₹3,535 apiece on the NSE during intraday trade on Monday, August 10, before paring some of the losses. The stock eventually settled at ₹3,735.10, down 3.14% for the day.

The sharp decline in early trade appeared to be a reaction to the company's June quarter (Q1 FY27) earnings. However, the stock recovered later.

Analysts remain largely cautious on Kaynes Technology despite a strong operational performance in Q1 FY27. While revenue and EBITDA beat estimates, elevated working capital days, higher receivables and inventory remain key concerns. The leading analysts also flagged higher depreciation and tax rates as factors that could weigh on earnings.

CLSA

CLSA said Kaynes delivered an operationally strong Q1 FY27, with revenue and EBITDA ahead of estimates. However, its balance sheet parameters weakened further, with a rise in working capital days resulting in a decline in reported ROCE.

Elevated inventory and receivables led to negative operating cash flow of ₹250 crore during the quarter, although collections from the smart metering business picked up. Kaynes remains focused on its balance sheet and expects a turnaround in receivables in the smart metering business by the end of FY27.

The investment firm said Kaynes is on track to commission its OSAT and PCB facilities in Q3 FY27 and targets revenue of ₹450-₹500 crore from these facilities in FY27.

JPMorgan

JPMorgan said Kaynes beat expectations on both revenues and margins for the first time in at least five quarters. Revenue grew 40% year-on-year and came 10% and 12% ahead of consensus and JPMorgan estimates, respectively.

EBITDA margin declined 120 basis points year-on-year to 15.6%, but was still 50 bps and 60 bps ahead of consensus and JPMorgan estimates, respectively. The core EMS business, excluding smart meters and August Electronics, grew an even faster 66% year-on-year in Q1.

Based on investor feedback, Kaynes took a conscious call not to grow its smart metering business, with revenues from the segment declining 9% year-on-year.

The main negative, according to JPMorgan, was the sharp increase in net working capital days to 163 days from 125 days in Q4, driven by smart meter collections spilling over into July as well as an increase in inventory days due to supply-side challenges.

Kaynes is guiding for positive operating cash flow by the end of FY27. JPMorgan cut its EPS estimates by 7-9%, mainly due to a higher tax rate.

While the revenue and margin performance was encouraging, given the misses seen over the last one year, the investment firm said working capital remains a concern, and it would monitor execution, particularly the reduction in receivables from smart meters.

Nomura

Nomura said elevated working capital days continue to impact cash flow from operations, although Q1 EBITDA was ahead of estimates. Execution on the de-risking of the smart meter business remains a key monitorable.

The investment firm maintained its FY27/FY28/FY29 EMS revenue growth estimates at 41%/33%/29%, respectively. It also retained its EBITDA margin estimates at 15.6%/15.6%/15.7% for FY27/FY28/FY29, respectively.

However, higher depreciation and tax rates led Nomura to cut its EPS estimates by 6-9% over FY27-28F.

Nomura said Kaynes trades at 45x FY28F EPS, adjusted for investments, which it believes is in the fair-value zone.

Kaynes Technology Q1 FY27 earnings

In its earnings release, Kaynes Tech reported a consolidated revenue of ₹946 crore in the June quarter (Q1 FY27), up 40% year-on-year (YoY), while EBITDA (excluding other income) increased by 31% YoY to ₹147.6 crore. However, EBITDA Margin (excluding other income) slipped 120 basis points (bps) to 15.6%. Profit after tax (PAT) declined 24% YoY to ₹56.39 crore.

PAT margin tumbled 510 bps to 6.0%.