The stock of the second-largest electronic manufacturing services (EMS) player by market capitalisation, Kaynes Technology India, was up 8 per cent in trade to Rs 4,581 on better-than-expected June quarter performance, strong order flows, and earnings revisions by brokerages. The stock has been one of the major outperformers among EMS players since the start of the year with gains of 76 per cent compared to the 13 per cent uptick for the Sensex.
The company’s revenues in the quarter were 70 per cent higher than the year-ago quarter, powered by the industrial and automotive segments. While the former was up 2.7 times, the latter was up 56 per cent over the year-ago quarter.
Though the gross margins slid 349 basis points year-on-year on an unfavourable business mix to 27.3 per cent, the margin slip was contained at the operating level to 28 basis points. Benefits from operating leverage helped the company report margins of 13.3 per cent. The gains were on account of lower employee and other expenses as a percentage of sales. Higher other income helped the company more than double the bottom line over the year-ago quarter.
JM Financial Research expects the company to maintain its growth momentum due to a strong product mix and focus on adding high-margin segments. In addition to this, the development of the component/chips ecosystem in India, leading to improved supply chains, onboarding new value-added customers, strong order book visibility, backward integration, and export opportunities, are other factors that would drive growth. Deepak Agarwal and Nikhil Kandoi of the brokerage expect the company’s revenue and operating profit to rise 59 per cent to 65 per cent over FY24-26. It has a buy rating on the stock with a target price of Rs 4,935 a share.
The revenue outlook for the company remains strong given that the overall order book has increased by 22 per cent on a sequential basis and 68 per cent over the year-ago quarter to Rs 5,038 crore. The order inflows in the quarter rose by over two times to Rs 1,430 crore. The robust order inflow was led by industrial/EV, outer space, and medical segments.
The company has guided for revenues to cross the Rs 3,000 crore mark in FY25. Margins are expected to trend higher at 15 per cent given the favourable mix with a larger contribution coming from industrial, aerospace, outer space, and strategic electronics.
Factoring in the strong Q1 performance and robust order inflows, Motilal Oswal Research has increased its earnings per share estimates for FY25 and FY26 by 8-10 per cent. Analysts led by Sumant Kumar of Motilal Oswal Research expect the revenue and operating profit to grow by 62-71 per cent over FY24-FY26. They have a buy rating on the stock with a higher target price of Rs 5,000 a share.
While HDFC Securities has also increased its earnings estimates by up to 10 per cent to reflect the higher revenue outlook, its target price is lower at Rs 4,000 a share. It has a reduce rating on the stock given the higher valuations.
First Published: Jul 29 2024 | 10:59 PM IST
