KAYNES - KAYNES TECHNOLOGY INDIA LIMITED Share Price

In the Q1 FY 2025-2026 earnings call, Kaynes Technology India's management provided an optimistic outlook. They reported total revenue of INR 6,735 million, representing a 34% year-on-year growth. Operational EBITDA was INR 1,130 million, up 69% from the previous year, with an EBITDA margin of 16.8%. The profit after tax (PAT) was INR 746 million, up 47%, indicating a PAT margin of 11.1%.

Executive management emphasized their confidence in sustaining performance, with an order book increasing from INR 50,386 million in Q1 FY '25 to INR 74,011 million in Q1 FY '26. Management maintained their revenue guidance of INR 4,500 crores for FY '26, comprising INR 4,250 crores from traditional EMS business, INR 100 crores from OSAT, and INR 175 crores from the acquisition of August Electronics in Canada. They expect to leverage their new capabilities and significant order inflows to meet these targets, projecting an acceleration in growth through the year.

Significant forward-looking points include:

1. Continued ramp-up in operational capabilities, especially with new projects in OSAT and PCB facilities expected to begin commercial operations by December '25 and January '26, respectively.
2. Strong traction in electric vehicle sectors and expanding client relationships in aerospace and rail sectors.
3. Expected improvements in working capital efficiency, targeting a reduction to below 70 days by FY '26.
4. Maintaining higher EBITDA margins than previously guided due to operational leverage and improved gross margins across all business sectors.

Overall, management reinforced its commitment to sustainable growth and long-term strategic initiatives despite macroeconomic uncertainties.

Major Questions and Answers from the Earnings Call Transcript

Question 1: Nitin Arora from Axis Mutual Fund asked about the confidence in meeting the revenue guidance of INR4,500 crores and how the growth will be achieved given the need for 65% growth in the next 9 months.

Answer: I appreciate your question, Nitinji. The INR4,500 crores guidance comprises INR4,250 crores from our traditional EMS business, about INR100 crores from the OSAT business, and an expected INR175 crores from our Canadian acquisition. We aim to significantly boost EMS revenue by the second quarter, likely exceeding INR1,000 crores. We are on track with OSAT and maintaining our guidance for INR4,500 crores plus on a consolidated basis while also projecting upward EBITDA movement from improved product profiles.

Question 2: Nitin Arora followed up on margins, asking if the reported EBITDA margin of 16.8% would continue over the next 9 months.

Answer: Yes, Nitinji, we expect EBITDA margins for the remaining nine months to be similar to or even better than Q1's reported 16.8%. As we continue to optimize our product mix and operational efficiencies, we anticipate sustaining this margin trend, and any updates will be provided during the first half or third quarter as actuals come in.

Question 3: Nitin Arora also inquired about cash flow and when the company expects to generate positive operating cash flow.

Answer: Absolutely, Nitin. We foresee significantly positive operating cash flow in FY '26, driven by improved collection efforts and operational efficiencies. Despite some working capital spikes due to our ramp-up in Q2, by year-end, we're targeting sub-70 days for working capital. We anticipate substantial progress in cash generation by the first half and continuous improvement throughout the year.

Question 4: Ankur from HDFC Life asked about the large jump in debtor days and the specific reasons behind it.

Answer: The increase in debtor days is partly due to seasonality, as Q1 typically starts slow, with billings ramping in later months. Additionally, an abnormal spike of approximately INR350 crores in receivables from our acquisition impacted the metrics. We plan to resolve this in the first half, and as that clears, we expect much improved efficiency going forward.

Question 5: Sonali Salgaonkar from Jefferies India asked for an update on the OSAT facility's capex utilization and sales expectations for FY '27- '28.

Answer: Sonali, our OSAT facility is on track, with significant client interest. By the end of FY '27, we expect to utilize over 50% of our capex. We've secured three major clients and are seeing good traction in advanced packaging initiatives. Expected yields look promising, and the operational commencement will enhance our capacity and market presence.

Question 6: Siddhartha Bera from Nomura queried about growth in smart meters, EVs, aerospace, and railways.

Answer: We aim for the smart meter segment to yield INR1,000-1,200 crores annually, with steady implementation growth. In EVs, we are onboarding a large 2-wheeler client, while aerospace orders are ramping up, particularly with a major OEM client. For railways, we expect initial order flows post KAVACH pilot, enhancing revenue by the end of the year.

Question 7: Praveen Sahay from PL Capital asked about the capitalization in OSAT and PCB, specifically regarding funding received.

Answer: So far, we've spent INR313 crores on OSAT and INR114 crores on the PCB project, primarily funded by our previous QIP. Current construction of these facilities aims for operational readiness, and we will seek government funding aligned with our equipment orders.

These summaries capture the essence of the discussions, staying within the character limits while providing a detailed account of management's responses.