Event Participants
Executives
3 Ramesh Kunhikannan, Muthukumar Narayanaswamy, Senthil P
Analysts
8 Achal Lohade, Aditya Bhartia, Indrajit Agarwal, Praveen Sahay, Renu Baid, Santhosh Seshadri, Siddharth Behera, Sonali Salgaonkar
Financials & KPIs
| Metric | Reported | Commentary |
|---|---|---|
| Total Revenue | ₹946 crores | +40% YoY; driven by EMS growth of 48% despite deliberate degrowth in smart metering |
| EMS Revenue | ₹854 crores | +48% YoY; standalone EMS (ex-overseas) grew 53% from ₹418 crores to ₹639 crores |
| Metering Revenue | ₹204 crores | -12% YoY; consciously scaled down to protect collections, impacted by flood situation in installation areas |
| Overseas Revenue | ₹102 crores | +327% YoY; August Electronics first full quarter consolidation (₹24 crores in Q1 FY26) |
| Order Book | ₹8,900 crores | Q1 additions exceeded deliveries; demand strong across domestic and global markets |
| Receivables | ₹1,925 crores | Up from ₹1,765 crores; EMS flat (₹606→₹613 crores), metering up (₹1,158→₹1,311 crores) |
| Inventory Days | 105 days | Up from 96 days; strategic pre-buying of components since February due to supply chain lead times |
| Working Capital Days | 163 days (12M rolling) | 190 days on quarterly standalone basis; management to report rolling 12-month view going forward |
| Operating Cash Flow | -₹259 crores | Improved from -₹379 crores in Q1 FY26; inventory build-up ₹156 crores, receivables up ₹90 crores |
| Effective Tax Rate | 35% | Consolidated; 32% standalone, impacted by amortization, capitalized intercompany interest, and loss-making entities |
| Total Debt | ~₹800 crores | Debt-to-equity ratio 0.3x; no external loans drawn for OSAT/PCB long-term capital yet |
| OSAT CapEx (FY26) | ₹473 crores | PCB CapEx ₹324 crores; total invested in OSAT+PCB ~₹1,200-1,250 crores incl. ₹250 crores in transit |
Geographic & Segment Commentary
EMS (Core India): Delivered 53% standalone growth, the highest among segments, with strength across automotive, railway, aerospace, and defense. Added India's second-largest two-wheeler EV manufacturer (serial supplies started after 8-month development cycle), global brands from Germany and France, and a leading Indian wireless communications company. 72 customers visited the plant in 75 working days; received performance awards from Mahindra and Siemens.
Smart Metering (Grid Plus): Revenue deliberately degrown -12% to ₹204 crores as management paused production/supply on weak collections (₹88 crores collected vs ₹240 crores sales) ahead of flood disruption. Received ₹200 crores in the first week of July, providing confidence of cash-positive turnaround by end of FY27. Management evaluating strategic options including divestment of the service component of the business, with a definitive strategy to be shared by February 2026.
OSAT & PCB: Total investment ~₹1,200 crores (₹700 crores OSAT, ₹500 crores PCB, ₹250 crores in transit). Government subsidies of ₹170 crores received for OSAT. CapEx to be capped at ~₹300 crores per entity in FY27. Track to commercial production and revenue booking from Q3 FY27. PCB commercial production starts Q2 FY27 with entire capacity contracted by a global player who has approved vendor code. New Mitsui partnership for MOSFET provides access to Japanese market.
Space Technology: First 3U satellite in prototype development, expected launch mid-next year on ISRO PSLV/GSLV vehicle. Subsidiaries and AeroCalib entering titanium gas bottle manufacturing for ISRO flight programs and DRDO missile projects, giving a second anchor customer from day one.
Company-Specific & Strategic Commentary
Supply Chain Resilience: Proactive inventory build-up of ₹150-156 crores since February positioned the company to sustain 40%+ growth despite component lead times extending to 6-8 months and component prices up 30-35% globally. PCB prices have tripled amid a global shortage, with suppliers demanding advance payments.
August Electronics Integration: One-year post-acquisition, business described as "shaping up nicely" with good EBITDA margins, strong inroads into North America, and key relationships with Honeywell, Otis, and Eaton; increasingly export-oriented with value addition to India.
Balance Sheet Discipline: Management framing balance sheet strength as "non-negotiable" while scaling; collections focus delivered ₹847 crores from EMS in the quarter, and EV two-wheeler customer receivables reduced below ₹100 crores. Full skills/capability mapping completed across organization for next-gen leadership development.
Sustainability: Partnering with Government of Karnataka on 20 hectares near Mysore for 10,000 trees; 3 GW solar installation in progress, achieving 23% reduction in energy intensity over 2 years.
Guidance & Outlook
| Metric | Guidance / Outlook | Commentary |
|---|---|---|
| Revenue Growth | 2x market growth (market growing at 17% in Q1) | Management declined absolute top-line guidance citing material availability volatility; confidence driven by inventory strategy and flexible manufacturing |
| OSAT + PCB Revenue | ₹450-500 crores FY27 | Commercial revenue booking from Q3 and Q4 FY27; customer validation complete for semicon, trials ongoing |
| CapEx (FY27) | ₹300 cr OSAT + ₹300 cr PCB + ₹250 cr EMS | Q1 spend ~₹230 crores; modular expansion linked to customer wins and subsidy flow; funds not a constraint |
| Smart Metering | Cash-positive by end of FY27 | Received ₹200 crores in early July; collections expected to strengthen as flood-impacted regions normalize |
| EBITDA Margin | Normalize in 2 quarters | Cost escalation from supply chain, energy, crude, commodity, and FX prices expected to ease; pass-through adjustments lag by a quarter |
| PCB Plant | Commercial production from Q2 FY27 | Entire initial capacity contracted by one global player; vendor code approved |
Risks & Constraints
| Risk | Context |
|---|---|
| Component & PCB Shortage | Global supply chain crisis with component prices up 30-35%, PCB prices up 3x, and lead times of 6-8 months in some categories. Management building strategic inventory and working back-to-back pass-through agreements with customers; expects some margin impact for 2 quarters. |
| Smart Metering Receivables | Metering receivables rose ₹153 crores to ₹1,311 crores during the quarter, driving the decision to halt production/supplies. Floods in installation regions exacerbated the situation. Management evaluating strategic restructuring options including divestment of the service portion by February 2026. |
| Forex & Commodity Inflation | FX movement alone impacted EBITDA by ~3.3% at import level; energy and crude price escalation raising costs. Mitigation through pass-through clauses, efficiency improvements, and strategic inventory timing. |
| OSAT/PCB Ramp-Up Execution | New businesses carry inherent learning curve; West Asia escalation caused minor timing slippage in equipment imports. Management working diversified logistics routes and alternate schedules; committed to Q3 FY27 operationalization. |
Q&A Highlights
EMS Growth Breakdown & Margin Bridge
- Question: Clarify the 48% EMS growth number and bridge the softer PBT margins; any view on correcting the smart metering strategic decision from 2 years back? (Renu Baid, IIFL Capital)
- Answer: Overall growth 40%, metering -28% (actually declined), EMS grew 48%+. PBT impacted by ~2.5 points from lower other income on QIP funds and higher depreciation from new investments. Metering business evaluating strategic options, including divestment of the service component; strategy to be shared by February 2026 as previously committed. (Muthukumar Narayanaswamy)
Cash Flow, Revenue Split & Order Wins
- Question: Share cash flow from operations and smart metering revenue; any color on the ₹1,600 crore of new order wins? (Siddharth Behera, Nomura)
- Answer: Total revenue ₹946 crores (ex-GST): metering ₹204 crores, rest EMS. Standalone EMS grew 53% from ₹418 crores to ₹639 crores; overseas from ₹24 crores to ₹102 crores (+327%). OCF negative ₹259 crores vs -₹379 crores last year; inventory up ₹156 crores (strategic), receivables up ₹90 crores. Added India's second-largest 2W EV maker, German/French global brands, and a leading Indian wireless communications company. (Muthukumar Narayanaswamy)
Smart Metering Business Model & Potential Divestment
- Question: Is metering an extension of EMS or a different ball game? Will it remain in consolidated results a year out? (Santhosh Seshadri, Spark)
- Answer: Metering has two parts: manufacturing (Kaynes' core strength) and installation/service (8-year government contracts driving receivables). The company holds distinct advantages as an integrated manufacturer-installer-software provider, ranked #1 nationally in installations. However, management is actively working on separating the service provider portion to prevent receivables from impacting the balance sheet. Cash-positive turnaround expected by end of FY27; enough order book exists to have grown revenue but deliberately held back for balance sheet discipline. (Muthukumar Narayanaswamy)
Absolute Balance Sheet Numbers & FY27 Growth Guidance
- Question: Provide absolute receivables, payables, inventory figures; what revenue growth to pencil in for FY27 and OSAT/PCB scale-up? (Achal Lohade, Nuvama)
- Answer: Receivables started at ₹1,765 crores and ended at ₹1,925 crores; EMS receivables flat at ~₹613 crores, metering up from ₹1,158 to ₹1,311 crores. Growth commitment is 2x market (market grew 17% in Q1); no absolute top-line guidance due to material volatility. OSAT+PCB FY27 revenue target of ₹450-500 crores on track, revenue starting from Q3. (Muthukumar Narayanaswamy)
Component Inflation & Margin Compression
- Question: Component prices up 30-35%; how much cost inflation was captured in Q1, and will FY27 see margin compression? (Praveen Sahay, PL Capital)
- Answer: FX impact alone ~3.3% on EBITDA at import level; inventory strategy minimized Q1 impact. PCB prices up 3x with advance payments required; component prices up 10-12% with availability the bigger challenge. Pass-through mechanisms adjust quarter-on-quarter with timing lag. Management acknowledged FY27 as "a difficult year" and "not going to be an easy year," but expects to meet planned requirements. Margin normalization expected in 2 quarters. (Muthukumar Narayanaswamy, Ramesh Kunhikannan)
Capex Guidance & PCB Margins
- Question: Provide consolidated CapEx guidance for FY27/FY28 and PCB pricing/margin contracts with the contracted overseas customer. (Indrajit Agarwal, CLSA)
- Answer: FY27 CapEx guidance maintained at ₹300 crores OSAT + ₹300 crores PCB + ₹250 crores EMS; Q1 spend ~₹230 crores. Modular capacity expansion will follow customer wins and subsidy flow. On PCB margins, management declined to comment on specific contracts, noting it's "too early," and pushed back on the view that global PCB margins have corrected—their overseas peers performed well in the latest quarter. (Muthukumar Narayanaswamy, Ramesh Kunhikannan)
Tax Rate, Debt, and OSAT Customer Mix
- Question: What explains the ~35% effective tax rate and total debt? Will OSAT uptake be domestic or international? (Sonali Salgaonkar, Jefferies)
- Answer: Standalone tax rate is 23%, consolidated 35% — the gap driven by intangible amortization (
3%), capitalized intercompany interest (5%), and loss-making entities (~4%). Total debt ~₹800 crores with D/E ratio 0.3x. OSAT customer mix still being finalized; management evaluating internal consumption vs external sales based on business mathematics. (Senthil P, Muthukumar Narayanaswamy, Ramesh Kunhikannan)
Cash Flow Reconciliation & Cost Pass-Through
- Question: How to reconcile negative ₹260 crores OCF with ₹160-180 crores quarterly CapEx and debt increase? Does margin pressure mean lower margins in coming quarters? (Aditya Bhartia, Investec)
- Answer: Consolidated cash flow bridge: cash profit ₹158 crores, inventory +₹156 crores, receivables +₹90 crores, others +₹144 crores, tax ₹26 crores; fixed assets ₹360 crores and investments ₹317 crores funded via financing ₹263 crores. Pass-through is immediate but carries a timing lag; the company has agreements with strategic customers on fast decision-making to avoid line stoppages. Margin impact minimized relative to peers; management expects to be "faster than peers" in recovering margins. (Muthukumar Narayanaswamy)
Order Book Composition
- Question: Provide sector-wise order book split. (Praveen Sahay, PL Capital)
- Answer: Company doesn't disclose segment-wise order book. Q1 additions exceeded deliveries; order book now exceeds ₹8,900 crores. Demand globally remains strong across North America, Europe, and India despite inflation, with no customers signaling cuts, including public sector enterprises. (Muthukumar Narayanaswamy)
Key Takeaway
Kaynes Technology delivered Q1 FY27 revenue of ₹946 crores (+40% YoY) with core EMS growing 48% and standalone EMS at 53%, offset by a deliberate -12% degrowth in smart metering to protect collections and the balance sheet. Operating cash flow improved to -₹259 crores from -₹379 crores a year ago, with strategic inventory build-up of ₹156 crores driving the residual outflow. Management maintained its 2x market growth commitment, guided OSAT+PCB to ₹450-500 crores revenue from Q3 FY27, and kept FY27 CapEx at ₹850 crores. Component price inflation (30-35% up, PCB 3x) and extended lead times of 6-8 months will pressure margins for 2 quarters, though pass-through agreements and pre-positioned inventory are expected to cushion impact. Key watch points: execution of the OSAT/PCB ramp-up, resolution of metering receivables (₹1,311 crores) with a strategic decision promised by February 2026, and the pace of margin normalization in a challenging global supply environment.