Kaynes Technology EMS growth offset by working-capital and margin pressure

Investment View and Valuation

In its August 11, 2026 result update, ICICI Securities retained its HOLD rating on Kaynes Technology India. The broker sees healthy core EMS growth and medium-term upside from the OSAT and PCB projects, but considers balance-sheet discipline, receivables and cash conversion to be key monitorables.

The target price is Rs 3,590, based on 45x P/E, versus the report CMP of Rs 3,735.

Q1FY27 Financial Performance

Kaynes Technology India reported a mixed Q1FY27. Consolidated revenue rose 40 per cent year on year to Rs 946 crore, although it declined 24 per cent quarter on quarter. Growth was broad-based across key businesses.

Standalone core EMS revenue increased 53 per cent year on year to Rs 639 crore, while overseas business rose 327 per cent to Rs 102 crore. Smart-metering revenue fell 12 per cent to Rs 204 crore as management deliberately moderated supplies to prioritise collections and improve the balance sheet.

Margins and Profitability

Profitability was affected by supply-chain inflation, geopolitical pressures and rupee depreciation. Component prices increased 30-35 per cent, PCB prices rose 10-12 per cent and lead times extended to 6-8 months. Management expects near-term margin pressure because of the lag in passing through costs, while revised pricing agreements and pass-through arrangements are expected to support normalisation over the medium term.

Q1FY27 PAT declined 24 per cent year on year to Rs 56 crore, reflecting higher operating and non-operating expenses and lower other income.

Order Book and Growth Outlook

The order book remained above Rs 8,900 crore, with Q1 additions exceeding execution. ICICI Securities believes the order book, new customer additions, customer traction and August Electronics' North American presence provide revenue visibility.

New customer additions included an Indian electric two-wheeler manufacturer, global brands from Germany and France, and a wireless communications player. The broker forecasts revenue to grow at about 36 per cent CAGR over FY26-FY28E, supported by EMS and the ramp-up of PCB and OSAT.

OSAT, PCB and New Initiatives

Management stated that OSAT and PCB commercialisation remains on track from Q3FY27 and targets combined FY27 revenue of about Rs 450 crore. OSAT trials and customer validation are nearing completion, while PCB trials are under way.

Kaynes Semicon's partnership with Mitsui provides access to Japan, and the company had received Rs 170 crore of government subsidy for OSAT through July 2026. A large global customer has reportedly requested the entire PCB capacity, subject to trials and approval, while discussions with a global electric-vehicle manufacturer continue.

Kaynes is also developing a 3U satellite for a potential mid-2027 launch, subject to regulatory approvals and the ISRO launch schedule.

Working Capital and Cash Conversion

Working capital is the principal concern. Receivables reached Rs 1,925 crore, comprising Rs 1,311 crore from metering and Rs 613 crore from EMS. Working-capital days rose to about 163 from about 122 in Q1FY26.

Q1 operating cash flow was negative at about Rs 259 crore, although this improved from negative Rs 379 crore a year earlier. Management received Rs 200 crore from Gridcrest in July and targets becoming cash-positive by FY27-end.

The company is evaluating restructuring or divestment of the metering service component to reduce receivable intensity.

Key Risks and Potential Positives

• Key risks include restraint in domestic government support measures.
• Near-term margin pressure may persist because of higher component and PCB prices, extended lead times and the lag in passing through costs.
• Better cash-flow performance and order-book execution could be a positive surprise.