The company's order book grew 20% YoY to ₹8,900 crore, providing strong revenue visibility across its core Electronics Manufacturing Services (EMS) business and emerging verticals like Outsourced Semiconductor Assembly and Test (OSAT) and Printed Circuit Boards (PCB). However, gross margins compressed sharply from 41.1% to 34.4% YoY, while EBITDA margins declined from 16.7% to 15.6% YoY. The working capital situation deteriorated further, with the cash conversion cycle expanding to 163 days from 122 days YoY, impacting operating cash flows and Return on Capital Employed (RoCE). InvestorPresentations +2
The 40% revenue growth was driven by strong performance across multiple verticals. The Industrial segment (including EV) remained the largest contributor at 55% of revenue, followed by Automotive at 26%. Notably, the Aerospace, Outer Space & Strategic Electronics segment grew 181% YoY, while the Medical segment also expanded significantly. These high-margin strategic segments now represent 4% of combined revenue, up from 2% in the previous year, reflecting Kaynes' deliberate diversification beyond traditional EMS services. The Railways segment also gained traction, growing to 9% of revenue from 7% YoY. The company's strategic shift toward higher-value segments like aerospace, medical, and railways is designed to improve overall profitability and reduce cyclicality, though these segments currently contribute modestly to total revenue. InvestorPresentations
The dramatic 670 basis point gross margin compression was primarily driven by raw material costs growing at 57% YoY to ₹620.5 crore, significantly outpacing the 40% revenue growth. Supply chain disruptions played a major role, with extended lead times across critical components: MCU & Power Devices (26-52 weeks), High Cap & Auto MLCC (26-32 weeks), and Diodes & MOSFETs (26-40 weeks). Component prices surged dramatically, with DRAM & NAND up 40-105%, MCU & Power Devices up 15-85%, and MLCCs & Tantalum Caps up 15-60%. Energy costs also escalated, with higher electricity and natural gas prices increasing plant operating and production costs. The rupee depreciation from ~85 in June 2025 to ~96 in July 2026 (~11% decline) added further pressure on import costs. InvestorPresentations +4
EBITDA margin compression of 120 basis points to 15.6% reflected additional operating leverage challenges. Depreciation & amortization surged 137% YoY to ₹370 million from ₹156 million, indicating significant capacity expansion investments coming online. Finance costs rose 31% YoY to ₹371 million, while employee expenses increased 44% YoY to ₹851 million. The company is balancing these margin pressures with strategic growth investments across business verticals, including 18 manufacturing facilities, 26 SMT lines, and 50+ patents in development. InvestorPresentations +1
The working capital situation represents a significant concern, with Net Working Capital Days increasing from 122 days in Q1 FY26 to 163 days in Q1 FY27—a 34% deterioration. Trade receivables surged to ₹1,527.6 crore in FY26 from ₹574.6 crore in FY25, a 166% increase. The smart metering business emerged as the primary culprit, with receivables specifically reaching ₹1,311 crore.
This decision prioritized balance sheet protection over near-term revenue growth. InvestorPresentations +1
The working capital deterioration severely impacted operating cash flows, which turned negative to ₹600.4 crore in FY26 from positive ₹70.1 crore in FY24. RoCE declined from 15.8% in Q1 FY26 to 11.6% in Q1 FY27, as increased working capital requirements tied up capital that could otherwise generate returns. Inventory levels reached ₹1,103.2 crore in FY26, with inventory build-up contributing ₹288.8 crore to working capital outflows. The company has implemented measures including securitization of receivables (~₹40 crore discounted) and enhanced collection focus, but the smart metering/GridCrest entity is targeting cash-positive status only by FY27-end. InvestorPresentations +1
Kaynes is executing a strategic transformation from traditional EMS to an integrated technology company with multiple growth engines. In the EV vertical, the company has expanded from one major four-wheeler manufacturer to now having two four-wheeler EV manufacturers, one two-wheeler EV manufacturer, one EV charging infrastructure provider, and one EV components company. A completed technology transfer with a European OEM in the EV supercharger segment has already secured one sizable order. Transcripts +2
The space business represents a bold diversification move.
The subsidiary will design, develop, and manufacture satellites of all classes and mission-specific payloads for diverse applications including communication, Earth observation, defense, and scientific research. This initiative leverages Kaynes' decade-long strategic partnership with ISRO and recruitment of former ISRO scientists. Transcripts
In defense manufacturing, two subsidiaries—Krio Precision and AeroCal Technologies—are entering titanium gas bottle manufacturing for ISRO and DRDO. The company has been approved by most defense and strategic electronics organizations and participates in defensive systems and military aircraft. Aerospace, outer-space, defense, and railways electronics are characterized as high gross margin sectors compared to automotive and industrial segments, providing better long-term margin potential. Transcripts +2
Brokerage firms remain sharply divided on Kaynes Technology's prospects.
The brokerage expects revenue CAGR of 41%, EBITDA CAGR of 44%, and Adjusted PAT CAGR of 52% over FY26-28, driven by OSAT and PCB commercialization from Q3 FY27 and expansion into space and defense electronics. However, to factor in lower-than-expected results due to higher depreciation and tax, Motilal Oswal cut FY27 and FY28 EPS estimates by 11% and 5% respectively.
JPMorgan is 'neutral' with a ₹3,600 target, calling the rise in net working capital days a "big negative" and cutting EPS estimates by 7-9% due to higher tax rates. Nomura also maintains 'neutral' with a ₹4,094 target, cutting EPS estimates by 6-9% due to higher depreciation and tax rates while calling valuations "fair." Kotak Institutional Equities has a 'reduce' rating with a ₹3,550 target.
The stock is currently under F&O ban, meaning no new derivative positions can be initiated, though existing positions can be squared off and cash market trading continues normally. This restriction, triggered when open interest exceeded 95% of the Market-Wide Position Limit, has reduced liquidity in the derivatives segment. Despite strong Q1 results, the stock has been volatile, recovering 8% from opening lows but still trading 6% lower at around ₹3,655 during recent sessions. The 52-week high of ₹7,699 versus current levels reflects a significant correction from peaks, with the stock now trading at 43x FY27e PE, much below its historical average of 65x.
The near-term outlook for Kaynes Technology hinges on execution across multiple fronts. Management has guided for FY27 growth at nearly twice the industry growth rate, with OSAT and PCB revenue expected from Q3 FY27 targeting a combined ₹450-500 crore for FY27. The company is also working on a business model update for the smart metering/GridCrest entity expected by February, which should provide clarity on working capital normalization.
The strategic initiatives in EV partnerships, space business development, and defense manufacturing represent a transformation from traditional EMS to an integrated technology company with diversified growth engines. However, the success of these initiatives depends on managing near-term working capital challenges, executing on the OSAT and PCB ramp-up, and delivering on margin expansion through favorable mix changes toward higher-value segments. The brokerage divergence reflects the classic tension between long-term growth potential and near-term execution risks, with investors closely monitoring working capital improvement and new business vertical execution as key catalysts.
