Cash flow concerns remain for Kaynes Technology amid Q2 profit jump, chip sales

young new delhi: Electronics producer Kaynes Technology has pushed plunk for its place of turning net cash positive to the end of the current fiscal year, after missing its guidance given last quarter to generate free cash flow by the end of September. Bengaluru-based Kaynes, which declared its second-quarter earnings on Tuesday, reported a 35% sequential jump in revenue to ₹906 crore, while net profit after tax jumped 61% sequentially to ₹121 crore.

However, the company spent more than what its business generated, leading to a negative cash flow of ₹218 crore. The management had stated last quarter that it would achieve cash-flow positivity by the September quarter.

Despite the strong profit growth, Kaynes spent more than its business generated, resulting in a negative cash flow of ₹218 crore for the quarter. This shortfall is largely attributed to its aggressive growth and focus on acquisitions. In May, the company finalized the acquisition of Canadian electronics manufacturing firm August Electronics for ₹347 crore. While the company expects the latter to significantly boost margins and revenue, its contribution has not yet been reflected in profitability.

“From ‘other non-current assets’ that represent receivables not due and to be paid over a longer time frame by clients, we experimentally converted ₹60 crore of this into revenue during this quarter. Over the next six months, we’ll hopefully remove the legacy receivable that is not due—and take it off the balance sheet,” said Muthukumar Narayanan, managing director of Kaynes Technology. “This will give us nearly ₹300 crore in cash in the system. If we had done this exercise during this (September) quarter itself, the negative cash flow could have been mitigated.”

Analysts said that the company remains one of India’s top electronics manufacturers, despite cash flow being a near-term concern. Harshit Kapadia, vice-president at Elara Capital, said that the company remains in a strong organic growth phase.

Growth intact

“There are no major concerns in terms of Kaynes’ growth pace and product development. They’re able to win customers, and adding more categories to improve backward integration—all of which is working well for it. The only concern is the inability to generate cash flow, since the company is in an exponential growth phase. As a result, the working capital available to Kaynes looks extremely stretched. For investors, this would be a near-term concern,” he said.

Other than that, Kapadia added that Kaynes is largely focused on enterprise technology manufacturing, “where the volumes are lower than consumer electronics, but the margins are much better. Among India’s top electronics manufacturers, Kaynes will remain one of the top companies to track.”

Investor reactions were not evident in Kaynes’ earnings, as they were announced late on Tuesday, and the market remained closed on Wednesday due to a holiday. Thursday will show how investors reacted to the management’s confidence in its business plan.

The September quarter also marked a change in leadership for Kaynes. Long-time managing director Ramesh Kannan, who co-founded the company in 1988, has moved to the role of executive vice chairman, as Narayanaswamy took office on 24 September.

In its Q2FY26 analyst call on Wednesday, Narayanaswamy claimed that despite trailing revenue growth rate and the operating cash flow target, Kaynes remains on track to achieve an annual revenue of ₹4,500 crore in FY26, at an Ebitda (earnings before interest, taxes, depreciation and amortization) margin of 15.6%. The company had earned ₹2,722 crore in FY25, at an Ebitda margin of 15.1%.

Operating cash flow

Incorporated in its current form in March 2008, Kaynes Technology specializes in assembly, design and manufacturing of enterprise technology infrastructure, such as smart meters, printed circuit boards and more. On 27 October, it became the first company officially approved under the Union government’s electronics components manufacturing scheme (ECMS), and will set up four factories across Tamil Nadu for manufacturing circuit boards, camera modules and coil laminates used in various electronics.

Kannan told Mint at the time that component manufacturing would commence with revenue contributions from the next fiscal year, representing further scope for expanding its operating margin. Narayanaswamy said on Wednesday that the company will be operationally profitable even before that.

“We’re pretty confident that as the second half goes by, the volumes (of production) will increase dramatically by at least 50-60% over H1FY26. We think we’ll be able to give you significantly positive operating cash flow as a result, by the year-end,” he said.

To be sure, operating cash flow is a key metric that indicates whether a company is spending more money than it earns, or vice versa. A ‘negative’ cash flow may make it challenging for businesses to attract investors, showing that even if a company is growing, making a profit remains tricky. On 19 June, Kaynes raised ₹1,575 crore from institutional investors. Nearly ₹841 crore, or 53% of the investment raised, was used to repay debt—with a further ₹160 crore allotted for acquisitions—which the company has not yet done since the fundraise.

Robust order book

“What matters to us is long-term sustainable profit. That is driven by the long-term profitability of all products across verticals and a good order book. Between quarters, there are small ups and downs in the execution of orders—driven by supply chain problems that we’re nailing now. But our total order book was nearly ₹8,000 crore in September, and monthly order inflow has gone up sequentially. While we may see some quarterly dips here and there, we’re confident that we’ll hit the annual guidance for profits and margins,” Narayanaswamy said.

He added that during the September quarter, Kaynes also shipped its first “commercial multi-chip module” to a client from its outsourced semiconductor assembly and test (Osat) facility in Sanand, Gujarat. Nearly 83% of Kaynes’ revenue comes from industrial electronics and automotive components.

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