KAYNES - KAYNES TECHNOLOGY INDIA LIMITED Share Price

Management Outlook and Key Highlights from Kaynes Technology Q3 FY25 Earnings Call:

1. Financial Performance & Growth Outlook:

• Revenue Growth: Expects FY25 operating revenue growth exceeding 55% YoY, driven by strong order inflows and execution momentum. Q3 FY25 revenue stood at Rs.6,612 million (30% YoY growth).
• Margin Expansion: Targets EBITDA margin improvement to 15%+ for FY25 (vs. 14.2% in Q3) and 16%+ for FY26, supported by higher-margin segments (industrial, aerospace, medical) and operating leverage.
• Order Book: Surged to Rs.60,471 million (as of Q3 FY25), up 11% QoQ, with robust inflows in industrial, EV, aerospace, and medical verticals. Monthly order inflow rose to Rs.4,285 million in Q3.

2. Strategic Initiatives & Expansion:

• New Facilities:
  • OSAT (Semicon) in Gujarat and HDI PCB in Tamil Nadu on track for revenue generation by Q4 FY26. Capex of ~Rs.4,800 crores (including 60"“75% govt. subsidies) planned through FY28.
  • Smart Meters: Hyderabad facility in series production; order pipeline robust with potential for ~Rs.1,000 crores annually.
• Acquisitions: Integration of Iskraemeco (smart meters) progressing smoothly. Majority stake in Sensonic (AI-based railway safety solutions) to enhance ODM capabilities.

3. Sector-Specific Highlights:

• Industrial & EV: Strong order momentum; expanded portfolio (2W, 3W, 4W EVs, charging infra).
• Aerospace & Defense: Orders secured; expected revenue acceleration in FY26.
• Medical & IT: New European client acquisition; IoT/IT growth aligned with government projects.

4. Financial Strategy:

• Working Capital: Improved to 107 days (vs. 117 days YoY), targeting further efficiency.
• QIP Plans: Exploring Rs.500"“700 crore fundraise for geographic expansion (U.S./Europe), ODM capabilities, and technology deepening.

5. Risks & Mitigation:

• Near-term delays in railways/smart meters due to election-related pauses, but confident in FY26 recovery.
• Capex funded via subsidies (50"“75% of project costs) and internal cash flows; limited debt reliance.

6. Long-Term Vision:

• Target to become a $1 billion revenue company by FY28, focusing on integrated ESDM (electronics) solutions, exports (20"“25% by FY26), and technology leadership in semicon/PCB.

Major Focus Areas: Margin improvement via high-value orders, operational efficiency, and new facility ramp-up.

Question 1:
"Good set of numbers. So first question would be on the margins front. So what makes us confident that going forward, we will have a better margin in terms of net margins as well as the operating margins? So if we see that regularly going forward, our expenses would definitely increase based on our new contracts with the clients that we are acquiring as well as the new talent that we need to acquire for the purpose and also our interest costs and other depreciations would also increase. So what makes us confident?"

Answer:
Margins are driven by improved gross margins from high-yielding sectors (industrial, aerospace, medical) and operating leverage as new teams' revenues ramp up. Employee costs for new acquisitions are front-loaded, but revenue contributions will offset these expenses starting Q4. EBITDA margins are projected to exceed 15% annually.

Question 2:
"Two questions. One was on the Rail segment, where we see this decline both 9 months and also for the quarter. So if you could just help us understand what's the reason behind that? I would assume there's been some delays and offtakes there. So if you could just help us what's happening on the rail side. And similarly, on the industrial business, also, if I understand right, there were some delays on shipments of smart meters. So if you could just help us understand, is that a one-off or what's really happening there? And how are we seeing Q4?"

Answer:
Delays in railway projects were due to election-related slowdowns, but order inflows have improved, with execution expected to rebound in Q4. Smart meter delays were temporary startup hiccups; production is now stable, and order execution will accelerate. Both segments are expected to recover robustly.

Question 3:
"Sir, I wanted to understand, apart from automotive and industrial, how are we looking at the other segment scale up in terms of medical, IoT? How are they scaling up? And (b), regarding our capex for the next few projects, how would the IRRs look on those because there would be some mismatch in terms of payment and collection from the government for the same, right?"

Answer:
Medical and IoT are scaling via large client acquisitions (e.g., a European medical client) and government projects. Capex for OSAT/HDI PCB projects is partly subsidized (50"“75% via govt. grants). Central subsidies are upfront, while state subsidies post-commissioning mitigate cash flow mismatches.

Question 4:
"Sir, first question is on the smart meter side. We have seen a couple of new states also sort of giving orders, I think Bihar and Rajasthan. So if you can just guide us about order book in smart meters, how much are we planning to execute over the next 1 year, if you have got anything more? And second is, basically on this guidance cut also for this year, is it more of pushback to next year because you said that you're going to catch up the lost cut of revenues in the current quarter in a couple of -- in the coming quarters. So some sense there, the reason for the cut and how should we think about next year?"

Answer:
Smart meter order book includes new state orders (Bihar, Rajasthan) and AMISP contracts, targeting ~INR1,000 crore in 12 months. FY25 guidance adjustment reflects execution delays in railways/smart meters due to elections, but order backlog ensures revenue spillover to FY26, which is projected stronger.

Question 5:
"Sir, just one accounting question. So what is the cash flow from operations for 9 months? And related question is that the kind of growth guidance that you are giving for core business, INR4,500 crores of revenue next year, that incremental INR1,500 crores of revenue would require ballpark INR500 crores of working capital requirement. So I mean, looking at our balance sheet from net cash to net debt because of our growth journey, so how this net cash, net debt position and OCF would look, say, in FY '26?"

Answer:
FY25 OCF will turn positive in Q4. FY26's incremental working capital needs (~INR500 crore) will be managed via supplier terms, customer financing, and inventory optimization. Net debt will rise moderately, but ROCE is expected to improve with higher revenue scale and operational efficiency.

Question 6:
"Congrats for a good set of numbers. I have 2 questions. One is on broad macroeconomic environment. So our company caters to various end industries like auto industrial, aerospace, including railways and semiconductor as well. Can you please honestly guide on like based on whatever discussions happening with the respective ministries like we all know that it's all capex story. And we all know our government is expected to play a great role here. So do you see budget cut at their end? Or are they looking to take back step here and mobilizing the funds from growth of the nation to any other area? Or are they looking to do it to control the fiscal deficit? So what's your take on this?"

Answer:
No budget cuts expected in critical sectors (railways, power, telecom) due to strategic importance. Government's Atmanirbhar Bharat push prioritizes indigenous manufacturing, ensuring sustained investments. Capex subsidies (e.g., semicon, smart meters) are contractual and unaffected by fiscal deficit concerns.

Question 7:
"In the TV interview and over here also, you talked about U.S. acquisition. So just to understand what kind of ticket size, what business profile are you looking at? Is it more on the downstream or similar EMS business?"

Answer:
Targeting small acquisitions (INR35"“50 crore range) in EMS/adjacent sectors with strong profitability and cultural fit. Focus is on geographic expansion (North America/Europe) and technology deepening to enhance ODM capabilities and market access.