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Continues to deliver robust performance

Earnings below estimates

* Kaynes Technologies India Ltd (KAYNES) delivered an all-round performance in 2Q with: revenue surging 59% YoY in 2QFY25, led by strong traction in the Industrials vertical (up 2.2x YoY; includes EV); order book growing 57% YoY to ~INR54.2b; and EBITDA margins expanding 90bp YoY during the quarter due to the favorable business mix.

* Its revenue has been growing at an average rate of ~58% over the last eight quarters and we believe this momentum to further strengthen due to the execution of a strong order book at hand. Margins are also expected to expand as a result of a favorable business mix toward highmargin sectors (industrials - smart meter, aerospace, and railways).

* We largely maintain our EPS estimates for FY25/FY26. We reiterate our BUY rating on the stock with a TP of INR6,600 (55x Sep’26E EPS).

Strong order book reaffirms robust growth visibility

*  Consolidated revenue grew 59% YoY to INR5.7b (est. INR6b) in 2QFY25, while EBITDA grew 68% YoY to INR821m (est. INR890m).

* EBITDA margins expanded 90bp YoY to 14.4% (est. 14.8%), led by the corresponding increase in gross margins (up 90bp YoY) as a result of a favorable business mix.

* Adjusted PAT grew 86% YoY to INR602m (est. of INR667m)

* The order book increased to INR54.2b as of Sep’24 vs. INR50.4b/INR34.6b in Jun’24/Sep’23. Order inflows in 2Q grew ~16% YoY to INR9.6b. The company expects order inflows to accelerate in 2HFY25.

* In 1HFY25, KAYNES’s revenue/EBITDA/Adj. PAT grew 64%/67%/95% YoY to INR10.7b/INR1.5b/INR1.1b; implied revenue/EBITDA/Adj. PAT growth in 2HFY25 is expected to be 71%/86%/84%, led by strong revenue growth coupled with margin expansion.

* Cash outflow from operating activities stood at ~INR2.3b in 1HFY25 vs. INR235m in 1HFY24. Net working capital days improved to 108 in 1HFY25 vs. 119 days in 1HFY24. Net debt stood at ~INR6b as of 1HFY25 vs. INR1.2b as of 1HFY24.

Highlights from the management commentary

* Guidance: The company maintains its guidance of surpassing INR30b revenue in FY25 with EBITDA margins of ~15%. It is expected to clock ~USD1b revenue by FY28 and triple its revenue by FY29 (on FY25 base). An increase in the mix of high-margin sectors, coupled with operating leverage, will drive margin expansion in 2HFY25.

* Exports: The company expects exports to pick up from 4QFY25/FY26. It expects exports to account for ~20% of the revenues in FY26 (vs 9.3% in FY24) and ~1/3rd of the revenues over the next 2-3 years.

* Smart Meter: The acquisition of Iskraemeco has opened up a significant opportunity worth ~40 to 50m smart meters to be executed over the next few years (revenue potential of ~INR65b). KAYNES expects to grab ~15- 20% market share within the smart meter segment.

Valuation and view

* With a strong order book in hand and healthy order inflows, KAYNES is likely to accelerate the 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 CAGR of 57%/64%/72% in revenue/EBITDA/Adj. PAT over FY24- FY27. We reiterate our BUY rating on the stock with a TP of INR6,600 (55x Sep’26E EPS).

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