Detailed Narrative
Q1 FY27 Performance Overview
Kaynes Technology reported a total revenue of INR946 crores for Q1 FY27, marking a 40% year-on-year growth. EBITDA for the quarter stood at INR147.6 crores, translating into a 15.6% EBITDA margin and a 31% year-on-year growth. The company maintains a robust order book of approximately INR9,000 crores, with INR1,500 crores in new orders secured this quarter. Despite these positive top-line figures, the company experienced a negative cash flow from operations of INR259 crores, primarily due to a strategic increase in inventory by INR177 crores and an increase in receivables by INR68 crores.
Strategic Growth Engines: OSAT and PCB Progress
The company's strategic growth engines, Kaynes Semicon (OSAT) and Kaynes Circuit (PCB), remain a key focus. Despite minor timing slippages due to global logistics disruptions from the West Asia conflict, both units are on track to be operational by Q3 FY27. The company has committed a full-year revenue target of INR500 crores from OSAT and PCB for FY27, with commercial booking expected to commence from Q3. Total capital expenditure for FY26 was INR473 crores for OSAT and INR324 crores for PCB, with a current FY27 capex goal of INR300 crores for each segment, plus INR250 crores for EMS.
Smart Metering Business Challenges and Strategy
The smart metering business experienced a 12% year-on-year degrowth in Q1 FY27, with sales of INR204 crores compared to INR231 crores last year. This was a conscious decision by management to prioritize collections and improve the balance sheet, as collections for the segment were only INR88 crores against sales of INR240 crores. The company acknowledges the challenges with receivables in this segment and is exploring options, including potentially divesting the service portion of the business, to de-risk its balance sheet. An update on this strategy is expected by the February earnings call.
Working Capital Management and Balance Sheet Focus
Working capital days increased to 105 days at the end of Q1 FY27, up from 96 days previously. This was attributed to a strategic decision in February to build up inventory by INR150-177 crores to mitigate global supply chain volatility🌐 and extended lead times (6-8 months for some components). Management is committed to turning the cash flow positive by the end of FY27 and ensuring the balance sheet remains 'clean'. Efforts are ongoing to improve receivables, with a significant reduction in outstanding from a leading EV two-wheeler customer to below INR100 crores.
Impact of Global Supply Chain and Macro Factors on Margins
EBITDA margins faced pressure due to cost escalation driven by global supply chain issues, rising energy and crude prices, commodity price increases, and forex movements. The company expects profitability to normalize within the next two quarters. Despite these challenges, Kaynes has implemented strategic inventory build-up and back-to-back working with customers to minimize the impact. While component prices have increased (10-12% for some, up to 3 times for PCBs), the company aims to pass on these costs, though adjustments may occur on a quarter-on-quarter basis.
New Customer Wins and Diversification
Kaynes Technology successfully onboarded India's second-largest two-wheeler EV manufacturer, with serial supplies already commenced. The company also secured new global brands from Germany and France, and a leading wireless communication company. The aerospace business saw a strong rebound this quarter. Furthermore, Kaynes is diversifying into space technology, with its first 3U satellite in prototype development, expected to launch mid-next year. Subsidiaries Crio Precision and Aerotech Technologies are entering titanium gas bottle manufacturing for ISRO and DRDO, securing a second anchor customer from day one.