Kaynes Technology Reports Sequential Revenue Decline in Q3 Amid Railway Project Delays
Electronics manufacturer Kaynes Technology disclosed an 11% sequential drop in its December quarter (Q3FY26) revenue on Friday. This performance comes at a time when its primary competitor, Syrma SGS, demonstrated steady growth. The company's top management, during a post-earnings conference call, pointed to a one-time setback from the delayed execution of the Kavach project—a comprehensive suite of sensors and electronic safety equipment designed for Indian Railways—as the primary cause for the quarterly revenue dip.
Management Cites Kavach Order Delay as Key Factor
Ramesh Kannan, founder and executive vice-chairman of Bengaluru-based Kaynes, elaborated on the situation. "The majority of the revenue decline stemmed from a delay in executing our Kavach order within the railways vertical, amounting to approximately ₹300 crore. While our orders are non-cancellable, delays often occur due to extended authorization periods from various agencies. The remainder of our business operations continue to perform robustly," Kannan stated.
Revenue for the December quarter was recorded at ₹804 crore, marking an 11% decrease from the previous quarter. Net profit experienced a more pronounced decline, falling 37% sequentially to ₹77 crore. This profit reduction was largely driven by a significant increase in unsold finished-goods inventory, which nearly doubled year-on-year to ₹43 crore and rose 7% from ₹40 crore in the September quarter.
Revised Guidance and Stock Market Reaction
In response to these results, Kaynes Technology revised its full-year FY26 revenue guidance downward to ₹4,100 crore from an earlier projection of ₹4,400 crore. Management attributed this entire downgrade to the postponed deployment of Kavach products for Indian Railways.
The company's stock exhibited notable volatility during Friday's trading session. It opened 5.4% lower than Thursday's closing price but subsequently reversed course, ending the day with a 2.3% gain. For the week, the stock registered an increase of 6.2%.
Focus on Operating Cash Flow and Future Prospects
Despite the pressures on revenue and profitability, Jairam Sampath, whole-time director and chief financial officer, expressed confidence in the company's financial trajectory. "We remain committed to generating positive operating cash flow by the conclusion of this financial year on a consolidated basis. We have dedicated substantial effort toward improving OCF. While we could have achieved cash flow positivity during the December quarter itself, we opted not to, resulting in a net cash flow of negative ₹55 crore for the quarter," Sampath explained.
Operating cash flow and margins have become critical focal points across the electronics manufacturing services (EMS) industry, which has traditionally expanded through low-margin assembly operations and government production-linked incentives.
Competitive Landscape and Strategic Initiatives
Syrma SGS, which announced its earnings on January 29, reported turning cash flow-positive during the December quarter. Additionally, Syrma achieved a 10% sequential increase in quarterly operating revenue to ₹1,264 crore, surpassing Kaynes's performance for the same period. Syrma's managing director, Jasbir Singh Gujral, later indicated the company's potential entry into semiconductor projects—a sector where Kaynes is placing significant bets for the next two fiscal years.
Sampath outlined Kaynes's strategic vision during the analyst call. "Considering our current client contracts and ongoing initiatives to enhance OCF, we anticipate remaining on track to reach $1 billion in annual operating revenue by FY28. Achieving this target would necessitate a doubling of our annual revenue during this period. We expect our new ventures in outsourced semiconductor assembly and testing (Osat) and printed circuit boards (PCBs) to contribute ₹1,500 crore and ₹1,000 crore annually within the next two years, thereby significantly bolstering our business," he stated.
He further noted that design-led manufacturing, currently accounting for at least 20% of revenue, is projected to grow by an additional 5-7 percentage points over the next two fiscal years.
Analyst Perspectives and Credit Rating
One week prior to the earnings announcement, credit rating agency Icra Ltd reaffirmed Kaynes's A-negative credit rating, with a net borrowing limit of ₹780 crore allocated for funding new projects.
Analysts have emphasized that the company's resilience will be closely monitored based on its ability to meet promised targets. Harshit Kapadia, vice-president at brokerage firm Elara Capital, commented, "Most of Kaynes's projects are supported by government incentives, including approvals under the ECMS scheme for its PCB project and ISM 1.0 for its Osat initiative. This indicates solid institutional backing, and the overall order book suggests sustained long-term growth potential. However, critical factors will include whether Kaynes can achieve cash flow positivity in the current quarter and realize the growth projections over the next two quarters."
