Buy Kaynes Technologies Ltd For Target Rs.6,500 by Motilal Oswal Financial Services Ltd
Robust order book reaffirms strong growth visibility
Earnings below estimates
* Kaynes Technologies (KAYNES) reported a strong 3Q performance, with revenue rising 30% YoY, led by strong traction in the Industrials vertical (up 38% YoY, including EV) and automotive (up 28% YoY). The order book jumped 60%/12% YoY/QoQ to ~INR60.5b, and its EBITDA margin expanded 50bp YoY during the quarter, fueled by the favorable business mix.
* Despite strong revenue growth in 3Q, it missed our estimates by 16% due to a delay in the execution of smart meter orders (~INR1b). The majority of this delay is expected to be executed in 4QFY25. We believe the earlier momentum of higher growth will resume considering the strong order book at hand. Margins are also expected to expand as a result of a favorable business mix toward high-margin sectors (industrials - smart meter, aerospace, and railways).
* We cut our EPS estimates for FY25/FY26/FY27 by 11%/8%/10%, by incorporating a guidance cut for FY25 and factoring in its 3Q numbers. We reiterate our BUY rating on the stock with a TP of INR6,500 (premised on 48x FY27E EPS).
Improved operating performance aided by a favorable business mix
* KAYNES’ consol. revenue grew 30% YoY to INR6.6b (est. INR7.9b) in 3QFY25, while EBITDA rose 35% YoY to INR940m (est. INR1.2b). EBITDA margin expanded 50bp YoY to 14.2% (est. 15.2%), led by a corresponding expansion in gross margin (up 650bp YoY) due to a favorable business mix. Adjusted PAT grew 47% YoY to INR665m (est. of INR892m).
* The order book rose to INR60.4b as of Dec’24 from INR54.2b/INR37.9b in Sep’24/Dec’23. Order inflows in 3Q grew ~54% YoY to INR12.9b. The order book was generated mainly from the Industrials & EV, Aerospace, and Automotive sectors.
* In 9MFY25, KAYNES’s revenue/EBITDA/Adj. PAT grew 49%/53%/74% YoY to INR17.4b/INR2.4b/INR1.8b; implied revenue/EBITDA/Adj. PAT growth in 4QFY25 is expected to be 67%/82%/54%
* Net working capital days deteriorated to 117 in 9MFY25 from 107 days in 9MFY24. Net debt was ~INR6b as of 9MFY25 vs. INR2.4b as of 9MFY24.
Highlights from the management commentary
* Guidance: Management reduced its revenue guidance to INR28-29b from the earlier guidance of over INR30b for FY25, while its EBITDA margin guidance remains intact at ~15%. For FY26, management expects INR45b of revenue (ex-inorganic revenue) with further improvement in margins led by better gross margin and operating leverage.
* QIP: The company highlighted its plans to raise funds through QIP to support its future growth drivers, such as geographical expansion (in North America), scaling up the ODM business, and deepening its technological footprint in certain niche areas of semiconductors.
* Smart meters: The new plant ramp-up is progressing well, and the current order book makes it mandatory for the company to further increase its capacity soon.
Valuation and view
* With a strong order book and healthy order inflows, KAYNES is likely to resume its strong revenue growth momentum going forward. Further, the increased traction in some of the high-margin verticals will lead to margin expansion for the company.
* We estimate a revenue/EBITDA/Adj. PAT CAGR of 56%/62%/68% over FY24- FY27. Reiterate BUY with a TP of INR6,500 (premised on 48x FY27E EPS).
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