Detailed Narrative
Strong Q3 FY25 Performance and 9M Highlights
Kaynes Technology reported a robust Q3 FY25 with total revenue reaching INR6,612 million, marking a 30% year-on-year growth. Operational EBITDA stood at INR940 million, reflecting a 35% increase YoY, with the margin expanding by 50 basis points to 14.2%. For the first three quarters of FY25, operating revenue grew 49% YoY to INR17,373 million, and operational EBITDA increased 53% YoY to INR2,431 million, maintaining a 14.2% margin. PAT for Q3 FY25 was INR665 million, up 47% YoY, with a margin of 10.1%.
Order Book Surge and Strategic Sector Focus
The company's order book demonstrated significant momentum, surging from INR54,228 million at the end of Q2 FY25 to INR60,471 million by the end of Q3 FY25. Monthly order inflow also saw a healthy increase, growing from an average of INR3,188 million in Q2 FY25 to INR4,285 million in Q3 FY25. This growth is primarily driven by high-yielding sectors such as industrial, EV, aerospace, medical, automotive, aerospace & defense, smart meters, and IT, with several large orders booked in these areas.
Progress on New Manufacturing Facilities and Acquisitions
Kaynes Technology is actively progressing with its strategic expansion initiatives. Land has been acquired and construction has commenced for both the OSAT factory in Sanand, Gujarat, and the HDI PCB factory in Oragadam, Tamil Nadu, with significant revenues expected from Q4 FY26. The integration of Iskraemeco India is underway, and the Hyderabad smart meter factory is in series production, having supplied several lakhs of meters. Additionally, the company acquired a majority stake in Sensonic, an AI-based railway network safety solution company, to enhance its ODM capabilities.
Capital Expenditure Plans and Government Support
The company has outlined substantial capex plans, with approximately INR4,800 crores allocated for new projects until FY28-29. This includes INR3,300 crores for the semicon project and INR1,400 crores for the HDI PC board project. A significant portion of this capex, ranging from 50% to 75%, will be supported by central and state government subsidies. The EMS business, requiring INR200-300 crores per annum for capacity expansion, is expected to be self-funded through internal accruals.
Margin Outlook and Operating Leverage
Management expressed strong confidence in achieving and exceeding a 15% EBITDA margin for FY25, driven by a favorable blend of business from high-yielding sectors and improved operating leverage as new teams and acquired businesses ramp up. Gross margins are expected to remain upward of 30%. For FY25-26, the company targets operating margins between 15-16%, anticipating further operating leverage and efficiency gains.
Strategic QIP for Future Growth and Diversification
The potential Qualified Institutional Placement (QIP) is earmarked for a three-pronged strategic growth plan, not for current business funding. This strategy includes establishing geographical beachheads in regions like the US and North America through acquisitions, enhancing ODM capabilities via inorganic acquisitions (like Sensonic), and deepening technology footprints in niche areas such as semicon and high-density PC boards. This aims to prepare the company for future growth beyond FY28-29.
Working Capital Management and Cash Flow Outlook
Net working capital days improved to 107 days at the end of December, down from 117 days in the prior year, despite higher inventory due to advanced purchases for upcoming quarters. While Operating Cash Flow (OCF) has not met expectations until Q3 FY25, management is confident of achieving positive OCF by Q4 FY25. The company is actively working with suppliers to control inventory and exploring recourse-less financing options with customers to optimize working capital.