Kaynes Technology India Ltd.

Kaynes Technology is a rapidly growing electronics and system design player benefiting from localisation, Defence demand and Semiconductor momentum. With diversified clients and OSAT-PCB expansion, it stands well positioned in India’s value chain. Yet, a sharp stock correction now raises key questions on valuations, cash flows, working capital and execution sustainability[EasyDNNnews:PaidContentStart]

Kaynes Technology has witnessed a sharp 30-35 per cent correction over the past month, making it one of the steepest drawdowns among listed Electronics Manufacturing Services (EMS) players. The stock, which once traded near its 52-week high of ₹7,825, has corrected to around ₹4,200, erasing a significant portion of investors’ wealth. The correction was not triggered by a collapse in revenues or order inflows, but by valuation de-rating following analyst reports that flagged accounting presentation issues, working-capital intensity and weak operating cash flows.

Given that the stock was trading at elevated multiples well ahead of peers, even moderate governance or disclosure concerns led to aggressive institutional selling and rapid multiple compression. Despite this, operational performance remains strong, creating a divergence between reported fundamentals and market sentiment. Let’s analyse what investors should do with this stock now.

About the Company
Kaynes Technology India is a leading Indian EMS player, now repositioning itself as a fully integrated Electronic System Design and Manufacturing (ESDM) company. Founded in 2008 and headquartered in Mysuru, the company offers end-to-end solutions spanning design, manufacturing, testing and lifecycle support.

Over the years, Kaynes has built strong capabilities across automotive electronics, industrial electronics, Railways, Aerospace & defence, EVs, IT hardware and smart metering. Its strategy has evolved from a traditional build-to-print EMS model to a higher-value design-led approach, enhancing margins and customer stickiness.

In recent years, Kaynes has made bold strategic moves into semiconductor OSAT (Outsourced Semiconductor Assembly and Testing) and advanced PCB manufacturing, aligning itself closely with India’s semiconductor and electronics manufacturing policy push.

Business Segments
1. Core EMS Business: The core EMS segment remains the backbone of Kaynes’ operations, serving automotive, industrial, EV, railways and IT customers. Automotive and industrial electronics have shown strong momentum, supported by higher electronic content per vehicle and localisation mandates. Railways and defence are emerging as structurally strong growth drivers, particularly with initiatives such as Kavach and defence indigenisation.

2. Smart Metering (Iskraemeco): The acquisition of Iskraemeco marked Kaynes’ entry into smart metering and AMISP-linked projects. While this provided scale and access to large government-led programmes, it also introduced working-capital-heavy annuity receivables, which became a key investor concern. Management has clearly articulated a strategic shift away from the AMISP model, aiming to become a device and solutions supplier, thereby structurally reducing balance-sheet risk over time.

3. OSAT (Semiconductor Packaging): Kaynes’ OSAT facility at Sanand represents a major strategic leap into semiconductor packaging. The company has already delivered India’s first commercially manufactured multi-chip module, in collaboration with Alpha & Omega Semiconductor and Mitsui. While meaningful revenues are expected only from FY27 onwards, early customer commitments and qualification progress offer long-term optionality.

4. PCB Manufacturing: PCB manufacturing is being developed as a key backward integration lever. Phase 1 targets high-layer boards (up to approximately 76 layers), followed by HDI and flex PCBs. Nearly 10 per cent of Kaynes’ existing EMS spend is on PCBs, providing immediate captive demand once the facility is fully qualified. Management expects PCB margins to be structurally higher than consolidated levels over time.

Sector Overview & Competitive Landscape
India’s EMS sector is undergoing a structural expansion, supported by PLI schemes, semiconductor incentives, defence localisation and rising domestic electronics consumption. Key listed peers include Dixon Technologies, Amber Enterprises, Syrma SGS and PG Electroplast. Kaynes differentiates itself through:
■ Early entry into OSAT and advanced PCB manufacturing
■ Diversified exposure across automotive, defence and railways
■ Deeper design and system integration capabilities

However, compared to consumer-facing EMS peers, Kaynes’ exposure to capital-intensive and project-driven segments makes cash-flow discipline and execution quality more critical for valuation sustainability

Financial Performance
Kaynes Technology delivered a strong operational performance in Q2 FY26, with revenue rising to ₹906 crore, reflecting a robust year-on-year growth of around 58 per cent. Operating profit stood at ₹148 crore, translating into an operating margin of approximately 16 per cent, supported by operating leverage and a favourable business mix. Net profit for the quarter was ₹121 crore, with earnings per share at ₹18.11. The company’s Order Book remained healthy at about ₹8,000 crore, although this figure does not yet include orders related to the OSAT business.

On a full-year basis, FY25 marked another year of rapid scale-up for Kaynes Technology. Revenue grew to ₹2,722 crore, registering a strong year-on-year growth of nearly 51 per cent, while net profit stood at ₹293 crore with operating margins of around 15 per cent. Over the past three years, the company has delivered an impressive sales CAGR of about 56.8 per cent and a profit CAGR of nearly 90.1 per cent, underscoring consistent execution and growth momentum. That said, operating cash flows remained under pressure, with free cash flow turning

negative as the company continued to reinvest aggressively in OSAT, PCB manufacturing and working capital to support future growth.

Business Updates - Last Five Years
Over the last five years, Kaynes has transitioned from a mid-sized EMS player into a strategic electronics manufacturing platform.

Key developments include:
■ Acquisition of Iskraemeco, adding smart metering and software capabilities
■ Entry into OSAT, positioning Kaynes in India’s semiconductor value chain
■ PCB manufacturing approvals under ECMS and PLI frameworks
■ Inorganic expansion via August Electronics, adding RF and Industry 4.0 exposure
■ Strong ramp-up in defence, railways and EV electronics

While these initiatives have expanded the company’s addressable market, they have also increased execution complexity and capital intensity, elevating investor focus on governance, disclosures and cash-flow quality.

Valuation and Outlook
As of current levels, Kaynes Technology is valued at approximately ₹28,100 crore, trading at a P/E of approximately 74x, significantly above the industry average of approximately 34x. The stock also trades at EV/EBITDA of approximately 44x and a price-to-book of approximately 6x, reflecting expectations of sustained high growth.

Promoter holding stands at 53.5 per cent, with no pledged shares, providing ownership stability. Institutional ownership has increased over time, though recent selling pressure has weighed on sentiment.

Despite the correction, valuations remain demanding and leave limited margin for error. Near-term re-rating will depend on:
■ Improvement in operating cash flows
■ Reduction in working capital intensity
■ Execution milestones in OSAT and PCB
■ Consistency in disclosures and governance comfort

Kaynes Technology remains a structural growth story aligned with India’s electronics and semiconductor ambitions. However, the recent correction highlights a shift in investor focus from growth alone to quality, cash flows and execution discipline. Given elevated valuations, near-term cash-flow pressure and the need for execution proof points, the risk–reward appears balanced rather than compelling at present levels.

We maintain a Neutral / Wait stance, advising investors to monitor improvements in cash-flow visibility and execution milestones before considering fresh exposure. Investors already holding the stock may continue to HOLD.

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