Detailed Narrative
Response to Analyst Report & Compliance Improvements
Kaynes Technology convened this call to address an analyst report that raised concerns about its accounting disclosures. Management clarified that the observations were primarily due to 'errors in reporting of disclosure in notes to accounts' and 'not lapse of intent, governance or conduct.' They emphasized that there are 'no governance concerns and no underlying deterioration in business.' The company has already rectified the noted disclosure errors and is strengthening internal compliances, audit review processes, and disclosure checks to prevent future occurrences.
Business Performance and Growth Drivers
The company reported FY25 revenues of INR27.2 billion, reflecting a significant 51% year-on-year increase. While the smart meter business's contribution is expected to trend down as a percentage of total business, other verticals such as automotive, industrial, electric vehicles, railways, and aerospace are demonstrating strong growth. Management noted 'many orders, significant orders' for devices and has secured three new OSAT clients, with samples shipped and commercial production initiated, aiming for 'good revenues, starting from FY '27 onwards'.
Capital Expenditure and Funding Strategy
Kaynes Technology has substantial capex plans, including a balance requirement of INR10.3 billion for OSAT and a total plan of INR14 billion for PCB. Approximately INR3.8 billion has been spent on OSAT and INR1.6 billion on PCB. These investments are primarily funded through a mix of QIP, internal accruals, and transitory📎 debt, with central government subsidies expected for PCB. Management indicated that free cash flow from the EMS business is not anticipated in the near term as profits will be reinvested for growth.
Working Capital Management and Efficiency
Acknowledging that 'working capital intensity is typical to the EMS industry,' Kaynes Technology is implementing several initiatives to improve its working capital cycle. These include collaborating with large customers on supply chain finance programs, leveraging factoring and bill discounting, and optimizing inventory. Management expects these measures to lead to 'visible improvement going forward⏳' and stated that the associated costs will not 'significantly alter the financials'.
Iskraemeco Acquisition and Financial Impact
The acquisition of Iskraemeco involved recognizing INR1.15 billion in intangible assets (customer contracts/technical know-how) and resulted in a net negative goodwill of INR10.31 million in consolidation. Management clarified that an H1 FY25 loss was primarily driven by 'significantly lower revenue' (approximately INR85.1 crores), provisions arising from Kaynes' due diligence (including INR44 crores in inventory write-offs), and broader corporate cleanup. The H2 FY25 period, without these burdens, saw revenues of INR532.7 crores and a PAT of INR48.9 crores.
Contingent Liabilities and Guarantees
Contingent liabilities increased to INR5.2 billion (18% of net worth) in FY25, up from INR2.7 billion (11% of net worth) in FY24. This rise is attributed to INR1.9 billion in performance bank guarantees issued for Iskraemeco projects and INR1.3 billion in corporate guarantees for subsidiary companies. Management stated these guarantees are 'necessitated by funding requirements of the subsidiaries for ongoing businesses' and are not indicative of underlying financial weakness.