Kaynes posts 11% sequential revenue drop on delayed railway order, cuts FY26 target

NEW DELHI: Electronics manufacturer Kaynes Technology on Friday reported an 11% sequential decline in December quarter (Q3FY26) revenue, at a time when its closest competitor, Syrma SGS grew at a steady pace.

In a post-earnings call, Kaynes’s top management attributed the quarterly revenue dip to a one-time hit from delayed execution of Kavach, a suite of sensors and electronic safety equipment for Indian Railways.

“Most of the dip came from a delay in execution of our Kavach order in our railways vertical, to the tune of ₹300 crore. Our orders are non-cancellable, but a lot of times there are delays that occur because of prolonged periods of authorization from various agencies. The rest of our business remains robust,” said Ramesh Kannan, founder and executive vice-chairman of Bengaluru-based Kaynes.

Revenue for the December quarter stood at ₹804 crore, down 11% sequentially. Net profit fell 37% from the September quarter to ₹77 crore. The profit decline was driven by a sharp rise in unsold finished-goods inventory, which almost doubled year-on-year to ₹43 crore and rose 7% from ₹40 crore in the September quarter.

Following the results, Kaynes cut its FY26 revenue guidance to ₹4,100 crore from an earlier ₹4,400 crore. Management attributed the entire downgrade to delayed deployment of Kavach products for Indian Railways.

The Kaynes stock had a volatile session on Friday, opening 5.4% lower than Thursday’s close before reversing course to end the day up 2.3%. The stock is up 6.2% for the week.

Despite the pressure on revenue and profit, Jairam Sampath, whole-time director and chief financial officer, said the company remains confident of “generating positive operating cash flow by the end of this financial year, at a consolidated level.”

“We have really worked hard on OCF. You may think that I only come here and talk about OCF every quarter, but we have done a lot of hard work, and we could have turned cash flow-positive during the December quarter itself. But we chose not to, and our net cash flow for the quarter was at a negative ₹55 crore,” Sampath said.

Operating cash flow and margins have become a key focus across the electronics manufacturing services (EMS) industry, which has historically scaled on low-margin assembly operations and government production-linked incentives.

Syrma SGS, which announced its earnings on 29 January, turned cash flow-positive during the December quarter. Syrma also reported a 10% sequential rise in quarterly operating revenue to ₹1,264 crore, surpassing Kaynes's December quarter performance.

Later, Jasbir Singh Gujral, managing director of Syrma SGS, told Mint that the company may also venture into semiconductor projects—a space that Kaynes is banking upon for the next two fiscals.

“Given the current contracts we have with clients and active efforts underway to improve OCF, we still expect to be on track to achieve $1 billion in annual operating revenue by FY28. While this would mean that our annual revenue will likely need to double during this period, we expect our new bets in Osat (outsourced semiconductor assembly and testing) and PCBs (printed circuit boards) to contribute ₹1,500 crore and ₹1,000 crore annually within the next two years, thus boosting our business,” Sampath said in the analyst call.

One week before its earnings, credit rating agency Icra LTd retained Kaynes’s A-negative credit rating, with a net borrowing limit of ₹780 crore to fund new projects.

“At the same time, our design-led manufacturing, which currently contributes to at least 20% of our revenue right now, is also likely to grow by 5-7 percentage points in the next two fiscals,” Sampath added.

Analysts said that the company’s resilience will particularly come under the scanner depending on its ability to match the promised targets.

“Most of Kaynes’s projects are backed by the government’s incentives—including the ECMS scheme approving Kaynes’s PCB project, and ISM 1.0 approving Kaynes’s Osat. All of this means that the company has solid backing, and from its overall order book, looks likely to retain its growth in the long run. However, much will depend on if Kaynes can turn cash flow-positive by the ongoing quarter, and if it can see the growth it has promised over the next two quarters,” said Harshit Kapadia, vice-president at brokerage firm, Elara Capital.