Kaynes Technology India Ltd. delivered strong revenue growth in the June quarter, but a sharp fall in profit and rising working-capital requirements have made brokerages more cautious about the stock.
The company reported a 40.5% year-on-year rise in consolidated revenue to Rs 946 crore in Q1 FY27, compared with Rs 673.5 crore in the same quarter last year. Revenue also came ahead of the Rs 863-crore estimate, signalling continued demand for the company’s electronics manufacturing services.
However, the strong top-line performance did not translate into higher profitability. Consolidated net profit fell 24.4% year-on-year to Rs 56.4 crore from Rs 74.6 crore. The figure was also below the Rs 66-crore analyst estimate.
EBITDA increased 29.5% to Rs 147 crore from Rs 113.5 crore a year earlier. The EBITDA margin, however, contracted to 15.5% from 16.9%. While the reported margin was slightly ahead of the 15.1% estimate, pressure on gross margins and higher employee costs weighed on the bottom line.
Gross margin declined by 680 basis points during the quarter, while employee expenses climbed 44% to Rs 85 crore. Other income also dropped to Rs 14.4 crore from Rs 27.1 crore a year earlier, adding to the pressure on net profit.
The biggest concern for investors, however, is cash flow. Kaynes Technology’s net working-capital days increased to 163 in Q1 FY27 from 122 previously. Net debt also rose sharply to around Rs 800 crore from Rs 200 crore.
Operating cash flow remained negative at about Rs 260 crore, according to Kotak. Smart-metering receivables also increased to Rs 1,311 crore from Rs 1,158 crore, making collections an important factor to watch in the coming quarters.
This has become particularly important because Kaynes Technology has been investing heavily in its next phase of growth. Its OSAT semiconductor packaging and PCB manufacturing facilities are expected to begin operations in Q3 FY27, later than the earlier Q2 FY27 timeline.
The delay means investors may have to wait longer for the contribution from these new businesses. At the same time, the company has indicated that supply and cost pressures in the electronics component industry have intensified, creating another near-term challenge for margins.
Brokerage opinions following the Q1 results have therefore been mixed but broadly cautious.
Kotak retained its ‘Reduce’ rating, although it raised its target price to Rs 3,550 from Rs 3,280. The brokerage acknowledged that Kaynes delivered strong revenue growth and that its core EBITDA margin of 15.6% was better than expected. However, it highlighted negative operating cash flow, rising working-capital days and concerns over smart-metering collections.
JPMorgan retained its ‘Neutral’ rating but lowered its target price to Rs 3,600 from Rs 3,700. The brokerage described the quarter as a strong beat on revenue and margin, noting that it was the company’s first revenue and margin beat in at least five quarters. Still, working capital remained its primary concern, while the delayed OSAT and PCB ramp-up could push back the expected benefits from the new facilities.
Nuvama took a more cautious stance and downgraded Kaynes Technology to ‘Reduce’ from its earlier rating. It raised its target price to Rs 3,450 from Rs 3,150, but cut its FY27 and FY28 earnings estimates by 12% and 2%, respectively. The brokerage cited the Q1 earnings miss, the outlook and the stock’s recent rally as reasons behind its downgrade.
The market reaction reflected these concerns. Kaynes Technology shares fell as much as 8.4% to Rs 3,530.70 on Monday after the results, although the stock subsequently recovered some of its losses during the session. Investors appeared to focus more on the deterioration in cash flow and working capital than on the strong revenue growth.
For Kaynes Technology, the central question now is whether revenue growth can eventually translate into stronger cash generation and earnings. The company’s electronics manufacturing business continues to benefit from rising demand, while its semiconductor and PCB investments offer significant long-term growth potential.
But investors are likely to closely track working-capital days, smart-metering collections, operating cash flow and the commissioning of the OSAT and PCB facilities. A sustained improvement in these areas could help rebuild confidence, while another deterioration could keep pressure on the Kaynes Technology share price.
The Q1 FY27 results therefore present a mixed picture. Strong revenue growth and better-than-expected core EBITDA margins offer positives, but declining net profit, weaker margins, negative cash flow, higher debt and delayed capacity expansion have shifted the near-term focus firmly towards execution and balance-sheet discipline.
For now, brokerages appear to be asking investors to look beyond Kaynes Technology’s impressive growth story and pay closer attention to the cash required to fund that growth.