Stock Performance of Kaynes Technology Dips Sharply
On Wednesday, shares of Kaynes Technology experienced a decline, plummeting nearly 10% to Rs 3,901.95. This downturn effectively negated most of Tuesday’s impressive 14% rebound.
The stock’s trajectory has been alarming, marked by a 26% drop over the past week, a 39% decrease month-on-month, and an astonishing 48% decline year-to-date.
For investors closely monitoring these trends, the catalyst for this latest depreciation was evident: a fresh target-price cut issued by Kotak Institutional Equities.
Kotak reaffirmed its “reduce” rating while dramatically revising its fair-value estimate from Rs 6,180 to Rs 4,150—a significant 33% reduction. This adjustment came despite the recent and steep decline in share price.
The brokerage highlighted lingering concerns regarding management’s responses to previous reports, stating, “certain aspects involving intangible accounting and inflated working capital remain ambiguous,” which only serves to amplify market apprehensions about transparency.
Warning Signals from Kotak
Kotak cautioned that achieving positive operating cash flow in FY2026, coupled with enhancing internal controls and executing the PCB and OSAT expansions promptly, is imperative for recovery.
Consequently, it has revised its earnings per share (EPS) estimates downward by 0.2–6.9% for FY2026–28.
Additionally, the brokerage adjusted its weighted average cost of capital (WACC) to 13% from 12%, an unusual alteration reflecting heightened execution risks, which further dampened market sentiment.
This shift raised scrutiny on the company’s imminent vulnerabilities. Kotak underscored that Kaynes’ guidance for FY2026 risks being jeopardized due to a downturn in smart-meter revenues, necessitating a nearly 90% growth in its EMS segment—excluding smart meters—in the latter half of the year, which it characterized as a “tall ask.”
Cash Flow Challenges and Working Capital Strain
The brokerage flagged Kaynes’ concerning cash generation profile, pointing out an operating cash outflow of Rs 0.8 billion in FY2025, followed by a considerably higher outflow of Rs 2.2 billion in the first half of FY2026.
This issue stems from protracted receivables and substantial working capital demands linked to the Iskraemeco acquisition, resulting in a dramatic rise in net working capital days to 171, up from 110 days in FY2024.
Kotak also drew attention to the slower-than-anticipated ramp-up of Kaynes’ HDI PCB plant, in addition to rising interest expenses—a combination that augurs execution risks likely to impede earnings and cash-flow predictability in the forthcoming months.
In light of this context, Tuesday’s notable rebound was widely construed as a result of short-covering rather than genuine investor confidence.
Analysts Weigh Risks and Opportunities
Some analysts contend that the recent correction has recalibrated valuation expectations. Harshal Dasani, Business Head at INVasset PMS, remarked, “The risk-reward dynamic has certainly improved in the near term, yet volatility will persist until delivery data stabilizes and institutional inflows become supportive.”
He noted that previous over-ownership and inflated valuations established during 2024-25 left the stock susceptible to negative news.
While Tuesday’s upward movement provided a temporary respite, Dasani asserted, “the rebound appears more as short-covering and opportunistic buying at lower levels; however, a sustainable recovery hinges on the speed of fundamental reestablishment.”
Technical Weakness Despite Oversold Conditions
Dasani cautioned that the technical landscape remains frail. “While the stock attempts stabilization following a sharp downturn, the structure is delicate,” he explained.
The recent decline has breached key short-term averages, fostering overhead resistance until volume confirms regained strength.
Notably, momentum indicators have plunged into oversold territory, but Dasani warned, “Oversold conditions do not equate to a trend reversal; confirmation typically occurs only when prices restore above pivotal moving averages with supportive breadth.”
He added that “the MACD remains in a negative crossover,” signaling sustained selling pressure.
Focus on Balance Sheet Viability and Growth Prospects
From a fundamental perspective, Dasani stressed the need for attention on capital efficiency and governance integrity.
“While working-capital strains are common in the EMS sector, prolonged difficulties can compress cash flows and heighten reliance on short-term borrowing,” he observed.
He further noted that “related-party disclosures and burgeoning contingent liabilities warrant meticulous observation as they can influence investor perceptions of governance and balance-sheet soundness.”
Stability in valuations will depend significantly on clarifying cycles of receivables and liability management.
Future Growth Trajectories Under Scrutiny
With the smart-meter industry’s cooling, investors are evaluating alternative growth avenues for Kaynes. Dasani indicated, “The next phase of growth within the EMS ecosystem will hinge on diversification—particularly towards industrial and automotive electronics, along with emerging high-reliability sectors.”
While opportunities in space technology offer long-term potential, he cautioned that meaningful scaling is not expected within a two-quarter timeframe.
The continuing decline in the stock reflects a market rapidly adjusting to governance and balance-sheet concerns.
Although the sharp correction may have improved near-term valuations, the technical structure remains precarious, with disclosures under intensified scrutiny and institutional involvement appearing tentative.
For investors, Kaynes now resides in a zone of elevated volatility, where prudence outweighs conviction.
A durable recovery necessitates clearer indicators concerning cash flows, internal controls, order momentum, and the company’s proficiency in reclaiming technical benchmarks.
In the interim, discussions surrounding whether to buy, sell, or hold remain closely associated with risk tolerance rather than clarity of outlook.
Source link: M.economictimes.com.
