Governance issues weigh, Growth intact …
About the stock: Kaynes Technology India (Kaynes) is an Indian integrated electronics manufacturing company offering end-to-end solutions, from design to life-cycle support, for various sectors including Automotive, Industrial, Aerospace, Medical, and IoT. Founded in 1988 and headquartered in Mysore, it provides Electronics System Design and Manufacturing (ESDM) services and has experience with 500+ customers both domestically and in international markets.
Recent factors driving stock volatility: Kaynes stock has recently taken a hit following concerns around i) the company’s accounting disclosures which made market participant nervous. For instance, under related party transaction (RPT) disclosures, company inadvertently failed to report reconciled balances between subsidiary companies. Although the reporting was missed at company’s end, it seems negligence sort of error rather than anything on governance front. The overall P&L and balance sheet is not misstated. Similarly, post management’s clarification on other issues, it seems sub-par disclosure created misinterpretation rather than management’s malafide intention.
ii) The company has outlined a sizable capex programme over the next few years, while elevated working-capital intensity and a weak free-cash-flow profile pose risks to timely execution, impacting return ratios. Here, post spike in working capital days in H1FY26, management has indicated by FY26 end, working capital shall improve considerably which will be keenly watched by markets. The company will be discounting receivables and take aid of supply chain financing to improve the same.
iii) Q2 performance remained slightly softer on growth front which management suggests is quarterly phenomena while it maintained its FY26 / FY28 / FY30 revenue growth guidance of ~₹4500 cr / ~₹9000 cr / ~₹18000 cr. Going ahead, growth would be led by electric vehicle, aerospace, railways, non-smart meter segment within Industrials. In medium to long term, OSAT and PCB manufacturing shall support growth which shall be margin accretive.
Our view and Target Price
• We view the issues highlighted as largely disclosure-related discrepancies and instances of misinterpretation arising from limited clarity in certain disclosures. We do not see any indication of fraudulent intent, and these matters are not expected to have a financial impact. However, they do underscore the need for improved transparency and consistency in the company’s reporting practices as these factors create trust issues and impact the multiple stock commands. We maintain BUY rating with a revised target price at ₹ 6,400, valuing the stock at 53x P/E on FY28E EPS.
