Kaynes Q1 preview: Near-term worries, long-term optimism

This could lift its earnings, to be announced on Wednesday, as it expects a number of future-looking projects to get closer to yielding revenue. However, this isn’t to say that there are no concerns. Let's dive in to the details.

How has the company performed recently?

A 49% sequential rise in operating revenue to ₹985 crore in the previous quarter missed analyst expectations (Bloomberg had projected Q4FY25 revenue to cross ₹1,000 crore). Net profit rose 76% sequentially to ₹116 crore as the company saw growing revenue from its design-led manufacturing efforts in product engineering and industrial internet of things (IoT).

To be sure, design-led manufacturing allows EMS firms to command a premium for designing a product instead of simply assembling it. This expands the profit margin and in turn contributes more to a company’s net earnings than low-margin electronics assembly.

Jairam Sampath, chief financial officer of Kaynes, said during an earnings call with analysts on 16 May, “Our key strategies include growth in new geographies through organic acquisition, strengthening our design-led manufacturing capabilities, and deepening our technology footprint in manufacturing. During FY25, we have taken significant steps to further our strategy implementation."

The company went on to project 60% year-on-year revenue growth for FY26, the first step of which will come under scrutiny in its June-quarter performance. However, while Kaynes has reported sequential growth in both revenue and profit in all of the past four quarters, it’s important to note the company missed analyst expectations for growth in revenue and net profit in Q3 and Q4 of FY25.

What do analysts expect this quarter?

This has led to analysts lowering revenue and net profit expectations for the coming quarter. A Bloomberg poll of 14 analysts, viewed by Mint, projected Kaynes Technology’s Q1FY26 operating revenue at ₹740 crore, a 25% sequential drop but up 47% year-on-year. Net profit is expected to come in at ₹66 crore, according to a poll of 13 analysts – a 43% sequential drop but up 31% year-on-year.

Praveen Sahay, research analyst at brokerage firm Prabhudas Lilladher Capital, also downgraded the stock from 'accumulate' to ‘hold’ in a note to investors on 19 May, citing “significant uptick in the stock price".

Brokerages retain long-term optimism but warn that the company may have near-term concerns as analysts await clarity on how Kaynes can reap the benefits of the ministry of electronics and IT's recently announced components incentive scheme as well as government incentives for the production of printed circuit boards (PCBs), a key product for the company.

A note to investors by brokerage firm JPMorgan India on 8 July projected India's electronics manufacturing would grow at 32% annually until FY30. Kaynes is expected to outperform the sector, with projected annual growth of 46%. This, Mehta said, could help the company grow revenue more than three-fold to more than $1 billion (about ₹8,900 crore) by FY28. Its FY25 revenue was just over ₹2,700 crore ($315 million).

Management commentary and guidance

Management guided for 60% year-on-year growth in FY26 on 16 May. While analyst projections collated by Mint pointed to a sequential revenue decline in Q1FY26, historical data showed the electronics manufacturing sector typically starts most fiscal years slowly, with production and revenue ramping up later in the year.

In the call with analysts last quarter, Sampath said that the company was on track to produce the first mass-scale PCBs at its plant by the end of FY26, and that chip production from its outsourced semiconductor assembly and testing (osat) plant was expected to begin in the next fiscal year. The company also expects its margin to increase as it pushes clients to sign design-led manufacturing deals across the automotive, aerospace and industrial electronics sectors.

While Kaynes also reported an all-time-high order pipeline from clients at ₹6,600 crore, Sampath added that the execution of orders—turning projected business into revenue—has an 18-month window. As Kaynes’s order pipeline was considerably lower at ₹4,100 crore in FY24, it could be set for a muted Q1FY26.

Acquisitions in Q1

During the quarter, the company increased its shareholding in its wholly owned Singapore entity Kaynes Holding Pte Limited, and spent ₹347 crore to fully acquire Canadian electronics manufacturer August Electronics Inc. The latter, management said on 9 May, would contribute to the company’s planned global expansion.

Shortly after the end of the quarter, on 28 July, Kaynes announced the acquisition of an 11% stake for ₹43 crore in Tranzmeo IT Solutions, a company that specialises in making sensor-based optic fibre cables that are critical for data transmission in enterprises such as oil and gas, natural resource management and more.

How has the stock performed?

Kaynes’s shares were at ₹5,433.50 on BSE at 2 pm on 29 July, down around 1.5% on the day owing to expectations of a muted first quarter, even as its long-term projections remained strong. The stock is down 31% from its 52-week high of ₹7,825 on 1 January, but is up 14% since the start of the fiscal year, having fallen below ₹3,900 in February.