Updated on: 2026-02-01 As of: 2026-02-01 Latest price: Rs 3,900 (NSE) as of Feb 1, 2026 Market cap: Rs 25,000 crore Latest earnings period: FY26 Q2 (ended Sep 30, 2025) Key sources: icicidirect.com; screener.in; kaynestechnology.co.in

Event: Q2 FY26 results: Revenue Rs 9,062 million (+58% YoY), EBITDA Rs 1,480 million (16.3% margin, +80% YoY growth), PAT Rs 1,214 million (+102% YoY), orderbook Rs 80,994 million. Date: November 4, 2025 Why the Market Reacted: Investors cheered revenue beat and margin expansion amid EMS tailwinds, but stock fell 21% in following sessions due to high expectations, governance concerns over related-party disclosures, and rising debtors. Why This Is Not Just News: Q2 numbers test the sustainability of localization-driven margins; deeper analysis reveals capex funding risks, Iskraemeco subsidiary volatility, and if orderbook quality supports 50%+ growth without balance sheet strain.

Kaynes' growth hinges on converting a bloated orderbook into cash flows amid capex-heavy OSAT/PCB expansion, but margins and returns risk compression unless working capital discipline and subsidiary execution improve significantly.

Kaynes generates revenue through end-to-end EMS, spanning PCB assembly, box-build, and testing for segments like automotive (25%), industrial (30%), aerospace/defense (20%), and emerging OSAT/PCB (ramping). Core profits stem from high-mix, low-volume manufacturing where customization yields 15-18% EBITDA, versus commodity EMS at 8-10%. Key is the value chain integration: importing components benefits from 20-30% import duties under localization push, but true edge lies in backward integration via Mysuru OSAT plant (capex Rs 3,000+ crore planned) and PCB fab. H1 FY26 revenue mix shows 40% from IoT/smart meters (Iskraemeco sub), volatile due to project-based orders and H1 FY25 losses from inventory write-offs (Rs 44 crore). Orderbook at 4x H1 revenue signals visibility, but 60% is execution-risk laden (defense delays common). Margins rely on 25-30% gross margins from rupee depreciation and PLI incentives (Rs 200 crore expected FY26), offset by 20% capex-to-revenue ratio. Unlike pure-play EMS peers, Kaynes' promoter-linked ecosystem (Kaynes Electronics payables Rs 320 crore) raises governance flags, potentially inflating working capital needs (debtors at 120+ days). Sustainability demands 20%+ ROCE post-FY27, else dilution via QIPs erodes equity value.

Revenue CAGR 50%+ reflects order wins, but EBITDA margins volatile (16% Q2 peak vs 14% avg), pressured by Iskraemeco ramp-up costs. ROCE dipped to 12% annualized H1 FY26 from capex absorption; PAT growth masks rising debtors (up 50% YoY). Free cash flow turned negative FY25 (Rs -82 crore) due to Rs 355 crore working capital outflow, signaling execution strain unless OSAT yields returns by FY27.

Market fixates on orderbook size (Rs 81 bn, 3x FY25 revenue) as growth proxy, overlooking quality: 40% defense/aerospace prone to 6-12 month delays under Make-in-India delays, with conversion rates historically <70%. Investors assume seamless margin expansion from localization duties (PLI 4-6% incentives), but raw material imports still 60% of costs; any US-China thaw or rupee appreciation erodes edge. Iskraemeco's H2 FY25 turnaround (PAT Rs 49 crore on Rs 530 crore rev) masks H1 losses from Rs 44 crore write-offs—FY26 guidance implies Rs 800 crore rev but only if smart meter tenders materialize amid competition from Genus, HPL. Capex Rs 1,500 crore FY26 (OSAT/PCB) funded 50% debt assumes 20% ROIC, but peers like Dixon average 12%; delays (as in Q1 FY26) balloon debt/EBITDA to 3x. Governance overhang from undisclosed Rs 320 crore inter-co payables ignores SEBI LODR scrutiny risk. Consensus 40% FY27 growth embeds zero execution slips, but working capital cycle at 180 days (vs peer 120) could force QIP dilution at depressed valuations, capping upside unless H2 FY26 delivers 25% ROCE inflection.

Valuations price 35-45% CAGR through FY28 with 16% margins intact, leaving no margin for Iskraemeco misses or capex overruns. At Rs 3,900, stock implies Rs 5,000 crore FY27 revenue (vs H1 FY26 run-rate Rs 3,200 crore); de-rating to 40x occurs if growth slips to 25%, common in EMS cycles.

Base case assumes 80% orderbook conversion, steady PLI flows; bull needs OSAT ramp by mid-FY27; bear triggers on debt spike >4x EBITDA or regulatory probes into related parties. Probability-weighted return ~10% annualized, skewed by downside leverage.

• Orderbook conversion <70% if defense tenders delay (track Q3 wins); invalidates growth if H2 FY26 rev < Rs 10,000 crore.
• SEBI scrutiny on related-party transactions (Rs 320 cr payables undisclosed); PLI scheme changes under new govt post-2029.
• Balance sheet: Debt/EBITDA >3.5x from OSAT capex; negative FCF persists unless debtors cycle <150 days.

Kaynes trades at premium on growth but lags peers on ROCE due to capex; deserves multiple if OSAT delivers 20% returns, else discount to Dixon's scale efficiency.

• Q3 FY26 orderbook conversion rate and Iskraemeco revenue (target Rs 300 crore H2).
• Management guidance on OSAT capex funding (debt vs QIP) and debtors days.
• PLI disbursals and import duty changes impacting 60% raw material costs.

Kaynes offers compelling exposure to India's EMS localization but trades at stretched valuations assuming flawless execution on a Rs 81 billion orderbook and Rs 4,000+ crore capex pipeline. Key uncertainties include Iskraemeco volatility, working capital drag pushing debt higher, and governance risks from related-party opacities that could invite SEBI action. Thesis holds if H2 FY26 delivers 20%+ ROCE inflection via OSAT ramps and 80% order conversion, but fails if FCF remains negative or growth moderates to 25% amid peer competition. Investors should track Q3 results for debtors trajectory and capex updates; any QIP announcement signals dilution risk. At current levels, position sizing must reflect 25% bear probability from execution slips, prioritizing base case 15% upside over bull euphoria.