Brokerage agency Kotak Securities’ notes on the corporate this month has had a cascade impact on the broader sector. Since 1 December, shares of Dixon, Syrma and Kaynes have crashed 11-30%, as analysts famous points with money move, availability of working capital, and talent to broaden manufacturing to hunt authorities incentives.
On 3 December, a Kotak Securities be aware reported “ambiguous accounting” of income accounted for from one in all Kaynes’ acquisitions, in addition to “inconsistencies” in associated social gathering transactions. The be aware additionally questioned if the corporate’s present working money move would allow its deliberate capital expenditures in new tasks.
Regardless of shaky investor confidence, analysts stay optimistic for the long term, as India’s 4 prime electronics companies retain the exponential features they’ve introduced for buyers since their listings.
Over the previous week, after Kotak Securities’ be aware. there have been related flags by the likes of JM Monetary and JPMorgan, elevating concern round monetary disclosures and working money move at Kaynes. They raised questions across the firm’s accounting discrepancies, and if it had sufficient capital to develop on the tempo it meant to.
On 5 December, Kaynes submitted a response on the BSE, admitting to “inadvertent non-disclosure” of associated social gathering transactions in its monetary statements. And, on 8 December, the corporate’s administration, headed by govt vice-chairman and founder Ramesh Kannan, addressed these issues in a name with analysts.
Traders, nonetheless, appeared jittery. On Wednesday, Kaynes’s shares fell 10.5%, earlier than recovering 3.5% on Thursday. Total, Kaynes’s share worth is down 30% since 1 December, and 44% from its 52-week excessive.
Trade underneath stress
To this point, electronics manufacturing companies companies have largely relied upon constructing scale, pushed by central and state authorities incentive schemes. This had to date labored out very properly—each for the businesses and their buyers. Kaynes, since itemizing in November 2022, gave buyers a 10x return inside three years. Even now, its share costs are at 5.4x since itemizing. The benchmark 30-share BSE Sensex, on this time, has risen 37%.
Equally, Dixon, Amber and Syrma have returned buyers 6x, 5x and a pair of.5x since their listings in September 2017, February 2018 and August 2022, respectively.
Now, a brand new set of incentive schemes want to enhance part manufacturing, which in flip would wish these firms to put money into constructing factories earlier than they get the mentioned sops and reap the rewards. Analysts are actually questioning if the sector would certainly be capable to make such investments.
“We be aware of administration responses to our report; nonetheless, sure features with respect to intangible accounting and elevated working capital nonetheless stay unclear. We imagine technology of constructive OCF (working money move) in FY2026, enchancment in inner controls and well timed execution of PCB (printed circuit board) and Osat (outsourced semiconductor meeting and testing) enlargement will probably be essential,” mentioned a second be aware on 9 December by Kotak Securities analysts Deepak Krishnan, Aditya Mongia, Naman Jain and Kartik Kohli.
A be aware by Bhavik Mehta and Ankur Rudra, analysts at brokerage agency JPMorgan, added, “There was no change in fundamentals on revenues and margins, however one of many key issues on the inventory has been stretched working capital and receivables submit 2Q.”
The sector, to make sure, is capital-intensive. On 14 November, Mint reported that every one of India’s prime electronics firms, together with the privately-held Tata Electronics, are pursuing acquisitions to enterprise into part manufacturing and different sub-segments that reap higher rewards in electronics.
Considerations about Kaynes have had a cascading impact on the whole electronics maufacturing companies sector. Since 1 December, Dixon Applied sciences, the only giant cap EMS agency, noticed its share costs decline 15% earlier than recovering 5.3% on Thursday. Syrma SGS and Amber Enterprises shares fell 10% and eight%, respectively over the previous 9 working days.
On the coronary heart of the difficulty, subsequently, are questions across the means of EMS firms, which have largely relied upon high-volume, low-value electronics assemblies, to generate sufficient working money move to put money into their companies.
Lengthy-term outlook
In response to a questionnaire despatched by Mint, Jairam Sampath, chief monetary officer at Kaynes Expertise, reaffirmed his declare from the earlier quarter’s earnings name, stating, “We maintain our resolve to get constructive working money flows by March 2026.”
“Kaynes has all the time delivered on execution of recent tasks. We have been the primary to supply and ship ICs (built-in circuits) made in India amongst the assorted entities who have been granted capital subsidy approvals by the federal government,” he mentioned. “Equally, important progress has been made in each the brand new tasks of Osat in addition to the HDI/Multilayer PC (printed circuit) Board fabrication. We’ve taken be aware of the feedback by numerous folks in media and through our analyst interactions, and we’re assured of guaranteeing the specified enhancements on every of the important thing points going through the enterprise.”
Sampath added that the corporate expects “to clock larger revenues in sectors apart from industrials reminiscent of railway electronics, aerospace, electrical autos, automotive, and many others., which is able to drive the expansion of ESDM (electronics system design and manufacturing) revenues for Kaynes to compensate for the sensible meter revenues.”
The corporate additionally plans to start out supplying packaged chips from its Osat plant in Sanand, Gujarat, this fiscal yr itself. He, nonetheless, denied there was any want to boost any additional capital, at the very least within the close to time period.
On this be aware, analysts mentioned that regardless of the issues, Kaynes could stay as a secure firm for buyers in the long term.
“The corporate’s total enterprise mannequin is strong, and so far as the expansions are involved, there’s no cause for Kaynes to fail at any stage. It could contemplate elevating additional funding for future acquisitions or venturing into extra new classes,” mentioned Harshit Kapadia, vice-president at brokerage agency, Elara Capital. “Total, what will probably be key to see are tighter inner controls in monetary reporting, and if it can actually meet its constructive working money move steerage this monetary yr.”
“We stay OW (obese) and anticipate enhancing receivables and NWC (web working capital) over the following two quarters to be key drivers of the inventory,” Mehta and Rudra of JPMorgan added.
