Kaynes Technology: Q2-25 Earnings Call Highlights
Exceeding Rs 3,000 cr revenue in FY25. Reaching $1 billion revenue by FY28. Tripling current business size by FY29. Well-positioned to maintain 40-50% growth for at least the next decade
kaynestechnology.co.in | NSE: KAYNES
1. Key Takeaways
1.1 TLDR
Overall, Kaynes Technology is well-positioned to capitalize on the growing demand for electronics in India and globally.
Q2 FY25 results and management commentary portray a company on a strong growth trajectory, strategically positioned to benefit from favorable industry trends and its focus on high-value segments
The company's strong financial performance, robust order book, and strategic focus on high-growth segments suggest a promising future.
Continued execution on their expansion plans and working capital management will be key to achieving their ambitious long-term goals.
1.2 Operational Highlights:
Strong Revenue Growth: Kaynes Technology achieved a revenue of INR 10,661 million in H1 FY25, representing a 64% YoY growth. Q2 FY25 revenue stood at INR 5,721 million, a 59% YoY increase.
Robust Profitability: Operational EBITDA for H1 FY25 was INR 1,490 million, with a 67% YoY growth. Q2 FY25 operational EBITDA was INR 821 million, marking a 68% YoY increase, resulting in an EBITDA margin of 14.4%. PAT for Q2 FY25 was INR 602 million, up 86% YoY.
Surging Order Book: The order book grew from INR 50,386 million in Q1 FY25 to INR 54,228 million in Q2 FY25, providing strong revenue visibility.
Growth Across Verticals: Kaynes Technology anticipates growth across all business verticals, including industrial, automotive, EV, IoT, railways, and aerospace. Smart meter revenue contribution is expected to ramp up in H2 FY25.
Strategic Expansion: Phase 1 of the smart meter factory in Telangana is operational, with Phase 2 construction underway.
Construction of the OSAT factory in Sanand, Gujarat, is progressing following government approvals.
The HDI PCB factory project in Chennai has received government approval and updates will be shared soon.
Both OSAT and HDI PCB factories are expected to contribute significant revenue starting Q4 FY26.
Iskraemeco Acquisition: The acquisition opens a significant opportunity in the smart meter market, with a potential revenue of INR 6,500 crores over several years. Kaynes Technology aims to secure 15-20% of smart meter orders awarded in India.
Export Potential: The management highlighted export opportunities in the smart meter segment, particularly in North America, South America, and Europe. A large European company has already approved Kaynes Technology as a supplier.
Working Capital Management: While working capital days stood at 108 days at the end of Q2 FY25, the management is actively working to reduce it to around 72 days by the end of FY25, with a focus on inventory and receivables management.
1.3 Key Themes:
Growth Driven by Import Substitution and Diversification:
KE Technology is capitalizing on the government's push for import substitution, leading to strong order inflow and growth across various verticals. Their diversified customer base and focus on high-growth sectors like EV, smart meters, and aerospace position them for continued success.
"…the entire plank of growth is based on uh localization of imports… So those are ones which are getting indigenized right now."
Strong Order Book and Revenue Visibility:
The consistently growing order book provides a strong foundation for future revenue. The management is confident about achieving the INR 3,000 crore revenue milestone in FY25 and a billion-dollar revenue by FY28.
"…I had committed on the day we got listed that we will be doing a billion dollar… by 28 and so far as per plan we are fully ready for that…"
Strategic Expansion and Investments for Future Growth:
Investments in new factories for smart meters, OSAT, and HDI PCB, coupled with the Iskraemeco acquisition, demonstrate a commitment to future growth and expanding into higher-value-added segments.
"…we are also gearing up for OSAT as well as the high-density interconnection board because we believe that those two are required for us to get into further higher techch area."
Focus on Working Capital Optimization:
Despite high growth, the management acknowledges the need for efficient working capital management and is committed to achieving shorter cycles, particularly through inventory and receivables management.
"…by the end of the year we have to get into a a shorter working capital cycle and also we want to also generate some OCF because for the next year there'll be significant revenues coming up…"
Long-Term Sustainability and Organic Growth Potential:
While the current growth is primarily driven by import substitution, the management believes that organic growth will emerge in the long term, fueled by technological advancements, increasing electronics adoption, and their position as a premier vendor in high-tech B2B segments.
"…we think that we can probably get a larger than uh normal share of that particular growth… it is not probably uh wrong to say that these growth rates will be sustained over longer period maybe even beyond the decade coming decade…"
1.4 Management Guidance from the Earnings Call
Revenue Guidance:
FY25 Target: The management expressed confidence in achieving revenue exceeding INR 3,000 crores in FY25. This target signifies strong growth, more than double the H1 FY25 revenue of INR 10,761 million.
Long-Term Ambitions: They reiterated their commitment to reaching USD 1 billion in revenue by FY28, a target initially announced during their IPO.
3X Business: Furthermore, they aim to achieve a tripling of their current business size by FY29.
Confidence in Sustained Growth: Management believes they are well-positioned to maintain high growth rates (40-50%) for at least the next decade.
Role of Inorganic Growth: While organic growth remains the primary focus, the company is open to strategic acquisitions that can enhance their capabilities, expand their customer base, or provide access to new geographies.
Margin Guidance:
Operational EBITDA Margin Target for FY25: Management anticipates exceeding an operational EBITDA margin of 15% for the full fiscal year FY25.
Kaynes Technology Q2 FY25 Earnings Call FAQ
1. What were the key financial highlights for Kaynes Technology in Q2 FY25?
KE Technology reported strong financial performance in Q2 FY25 with total revenue reaching ₹5,721 million, representing a 59% year-on-year growth. Operational EBITDA for the quarter was ₹821 million, a 68% increase year-on-year, resulting in an operational EBITDA margin of 14.4%. The company's consolidated PAT for the quarter surged by 86% to reach ₹602 million, leading to a PAT margin of 10.5%.
2. How is Kaynes Technology addressing the challenges and opportunities in the smart meter market?
Kaynes Technology acknowledges the challenges in the smart meter market, including implementation delays due to elections and customer resistance in certain states. However, they remain optimistic about the long-term prospects of this sector, driven by government commitment and the need to improve power distribution systems. The company has secured a significant market share through strategic partnerships and the acquisition of Iskraemeco, a leading smart meter provider. They aim to capture 15-20% of the total smart meter market, estimated at around 25 crore meters.
3. What are Kaynes Technology's plans for expansion and growth in new business verticals?
Kaynes Technology is actively expanding into new high-growth business verticals, including:
OSAT (Outsourced Semiconductor Assembly and Test): A new factory in Sanand, Gujarat is under construction and expected to generate revenue from Q4 FY26.
HDI PCB (High Density Interconnect Printed Circuit Board): The company secured government approval for an HDI PCB factory in Chennai, also slated to commence revenue generation in Q4 FY26.
Smart Meters: The first phase of a dedicated smart meter factory in Telangana is operational, with construction for phase 2 already underway.
Railways: Kaynes Technology aims to capture a significant portion of the ₹68,000 crore government allocation for the Kavach rail signaling system. The company is developing an ODM (Original Design Manufacturing) solution in collaboration with a German partner and targets a 15-20% market share.
4. How will the acquisition of Iskraemeco contribute to Kaynes Technology's growth?
The acquisition of Iskraemeco is highly synergistic with Kaynes Technology's smart meter ambitions. It brings:
Expertise: Iskraemeco's team possesses extensive experience in smart meter implementation and technology.
Proprietary Technology: Iskraemeco owns valuable software and technology for smart meters and related systems, offering additional revenue streams.
Market Access: The acquisition strengthens Kaynes Technology's relationships with key clients, including state government entities and AMISPs (Advanced Metering Infrastructure Service Providers).
Export Potential: Iskraemeco's existing export business in North America, South America, and Europe provides opportunities for Kaynes Technology to expand its global reach.
5. What is Kaynes Technology's strategy to manage working capital requirements amid rapid growth?
KE Technology aims to maintain a healthy working capital cycle despite the challenges posed by rapid growth and expansion. Their strategy involves:
Inventory Optimization: Implementing measures to reduce inventory days by optimizing procurement and production processes.
Receivables Management: Actively managing outstanding receivables to shorten collection cycles.
Vendor Collaboration: Exploring options for vendor-managed inventory (VMI) to reduce inventory holding costs.
The company expects to achieve a net working capital cycle of around 72 days by the end of FY25.
6. How does Kaynes Technology see the automotive and EV segments evolving?
Kaynes Technology expects continued growth in the automotive and EV segments, with specific focus on:
Two-wheeler EVs: This segment is expected to experience strong growth, particularly in urban areas, where the adoption of electric two-wheelers is rapidly increasing.
EV Components: The company supplies components to both domestic and international EV OEMs, presenting a steady growth opportunity.
Charging Infrastructure: The expansion of charging infrastructure for both two-wheelers and four-wheelers will drive demand for related electronics.
7. What is Kaynes Technology's outlook on exports?
While current revenue is primarily driven by domestic demand, Kaynes Technology targets to achieve a 20% export share in FY26. This growth will be fueled by:
OSAT and HDI PCB Production: The new factories will contribute to export revenue from Q4 FY26 onwards.
Growth in Existing Export Markets: The company plans to expand its presence in existing export markets, such as the US, leveraging its acquisition of Iskraemeco.
New Export Opportunities: Kaynes Technology is exploring new export opportunities in sectors like instrumentation and smart meters.
8. How does Kaynes Technology ensure sustainable and profitable growth in the long term?
Kaynes Technology employs a multi-faceted approach to ensure sustainable and profitable growth:
Focus on Import Substitution: Capitalizing on the significant opportunity presented by the government's push for import substitution in the electronics sector.
Expansion into High-Growth Verticals: Strategically entering new high-growth segments like OSAT, HDI PCB, and aerospace & defense.
Technological Advancement: Continuously investing in research and development to stay ahead of the technological curve and offer innovative solutions.
Operational Efficiency: Optimizing production processes, supply chain management, and working capital to improve profitability.
Strategic Acquisitions: Pursuing strategic acquisitions to acquire new technologies, expand customer base, and enhance market access.
Kaynes Technology believes this comprehensive strategy will enable them to maintain a strong growth trajectory and solidify its position as a leading integrated electronics company in India.
Source: Link to Earning Call Recording
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