Kaynes Technology core EMS growth backed by OSAT and PCB commercial ramp-up

Investment View and Target Price

PL Research maintains an Accumulate rating on Kaynes Technology India following a strong Q1FY27 performance, with revenue and EBITDA exceeding its estimates. The broker’s thesis is centred on sustained core EMS growth, deeper customer penetration, diversification across verticals and the expected commercial ramp-up of the OSAT and PCB businesses from Q3FY27.

PL Research raised its target price to Rs 4,390 from Rs 3,506 and marginally increased its FY27E and FY28E sales, EBITDA and EPS estimates. Its DCF-based target price implies a valuation of 50 times March 2028E earnings.

Q1FY27 Financial Performance

Kaynes Technology India reported Q1FY27 revenue of Rs 9,460 million, increasing 40.5 per cent year on year and exceeding PL Research’s estimate by 12.4 per cent. EBITDA grew 30.5 per cent year on year to Rs 1,476 million, 19.0 per cent ahead of the broker’s estimate. EBITDA margin was 15.6 per cent, down 120 basis points year on year but 80 basis points above the estimate.

Adjusted PAT declined 24.4 per cent year on year to Rs 564 million, although it was 4.0 per cent above PL Research’s estimate of Rs 543 million. Profit before tax fell 8.5 per cent year on year to Rs 879 million, as depreciation increased by about 137 per cent and interest expense rose 30.6 per cent.

Segment Growth and Order Book

Gross margin contracted by about 690 basis points year on year to 34.4 per cent, reflecting higher operating and manufacturing costs. Automotive and industrial remained the largest contributors, accounting for 81 per cent of Q1FY27 revenue.

Growth Outlook and New Business Initiatives

Management did not provide absolute FY27 revenue guidance, but expects Kaynes Technology India to grow at nearly twice the EMS industry’s estimated 15 to 17 per cent growth rate. Growth is expected to be supported by deeper customer penetration, product additions and diversification across verticals.

Commercial revenues from the OSAT and PCB businesses are expected to begin from Q3FY27. Management is targeting FY27 revenue of Rs 4,500 to Rs 5,000 million from these businesses. Kaynes has invested about Rs 12,000 million in OSAT and PCB facilities, with a further Rs 2,500 million of equipment in transit.

The PCB facility has attracted interest from global customers, including one customer seeking the entire available capacity. Customer trials and vendor approvals are underway. Management is also close to finalising an engagement with a large global electric-vehicle manufacturer.

New customer additions included a leading electric two-wheeler manufacturer, global German and French brands, and a wireless communication company. Kaynes Semicon entered into a strategic partnership with Mitsui to access the Japanese market and strengthen its semiconductor-packaging capabilities.

Costs, Capex and Operating Considerations

Management indicated that component prices have increased by 10 to 12 per cent. PCB shortages and six to eight-month lead times could pressure margins in FY27. The company intends to mitigate the impact through price pass-through, strategic inventory and operating efficiencies.

For FY27, Kaynes plans capex of about Rs 3,000 million for PCB and Rs 2,500 million for EMS. Kaynes Semicon had received about Rs 1,700 million of government subsidy through July 2026.

Smart Metering and Working Capital

Smart-metering revenue declined 12 per cent year on year as Kaynes moderated supplies amid elevated receivables and weak collections. Management is evaluating a divestment of the service and installation business to ease working-capital pressure while retaining the manufacturing operations. Clarity on the proposal is expected by February 2027.

Q1FY27 operating cash flow remained negative at about Rs 2,600 million, although this was an improvement from negative Rs 3,800 million in Q1FY26. The cash-flow pressure was primarily due to inventory and receivables. Management expects operating cash flow to turn positive by the end of FY27.

Broker Estimates and Key Execution Considerations

PL Research forecasts FY26 to FY28E revenue, EBITDA and PAT compound annual growth of 41.6 per cent, 40.1 per cent and 23.9 per cent, respectively.

Key execution considerations for the investment case include:

• The pace of the OSAT and PCB commercial ramp-up.
• Margin pressure from higher component prices and PCB supply conditions.
• Working-capital discipline and the collection of smart-metering receivables.
• Execution of planned capex and deployment of equipment.
• Logistics disruptions affecting equipment imports.