KAYNES

Scales Up with New Orders and Projects, Cash Cycle Remains a Concern

posted a stellar Q2FY26 performance with strong revenue growth and margin expansion. However, concerns around cash flow efficiency and elevated valuation temper the long-term outlook. - Robust Financial Performance: Revenue grew 58% YoY in Q2, driven by industrial and automotive verticals. EBITDA margin expanded by 191 bps YoY to 16.3%, supported by operating leverage and a richer product mix. - Strong Order Pipeline: ₹1,600 crore in new orders were booked in Q2, taking the unexecuted order book to ₹8,100 crore (up 49% YoY). With a ~2.5x book-to-bill ratio, the pipeline ensures visibility over 12–18 months, led by industrial, automotive, smart meters, medical, and railways. - Segmental Growth & Expansion Plans: Industrial revenue rose ~74% YoY; automotive grew 26% YoY, with 50% growth guidance ahead. Railways benefit from the Kavach programme, while aerospace awaits final customer approval. Domestic capacity additions include the Sanand OSAT facility (Q4 FY26) and Chennai HDI PCB unit (Q1 FY27), enhancing margins and backward integration. - Cash Conversion Challenges: Operating cash flow was negative ₹218 crore in H1FY26 due to high receivables (~₹1,113 crore or 126 days). Management is addressing the 110–120 day cash cycle via receivable discounting, invoice financing, and Vendor Managed Inventory systems. - Valuation & Investment View: FY26 revenue is guided at ₹4,500 crore with ~16% EBITDA margin. However, the stock trades at 57x FY27 earnings, factoring in future project gains. Given the reliance on internal cash flows for capex and the time needed to scale new initiatives, profit booking is advised.