Kaynes Tech shares: Elara calls selloff a ‘disproportionate punishment for a misdemeanor’, sets target

Elara Securities said the sharp correction in Kaynes Technology India Ltd shares appeared disproportionate to the recent issues flagged, as it retained 'Buy' rating  on the stock, while lowering its target price to Rs 5,365. Calling the selloff as a "disproportionate punishment for a misdemeanor", the brokerage said the stock had declined about 41 per cent over the past three months, including a 19 per cent fall after the Q2FY26 results and a further 22 per cent drop following concerns around accounting disclosures and cash-flow generation.

Elara Securities said that while strict accounting standards and comprehensive disclosures were essential, the market reaction had been excessive relative to the scale of the disclosure and accounting inconsistencies. It added that there is no material impact on Kaynes Tech’s growth prospects or core fundamentals related to revenue and margins. The brokerage said Kaynes' strong growth outlook, with FY25–FY28 revenue and PAT CAGR estimated at 47 per cent and 49 per cent, respectively, and said the recent correction had made valuations more attractive.

The brokerage maintained its EPS estimate of Rs 127.70 and said it now valued the stock at 42x FY27E price-to-earnings, compared with 70 times earlier, in line with the moderation seen in EMS sector multiples. On this basis, it cut its target price to Rs 5,365 from Rs 7,670 earlier. Elara Securities noted that Kaynes Technology is trading at about 38 times FY27E EPS, around 10 per cent below the industry average, which it viewed as attractive within the EMS space.

Addressing concerns around goodwill related to the Iskraemeco acquisition, Elara Securities said the differences stemmed from varying opinions on the valuation of intangible assets. 

It noted that management had clarified that a capital reserve of about Rs 52.20 arising from Iskraemeco had been netted off against goodwill from the Sensonic acquisition of about Rs 51.10 million, resulting in net goodwill recognition of roughly Rs 1 crore. The purchase consideration also included intangible assets of about Rs 115 crore for technical know-how. The brokerage argued that even if debated, the quantum involved did not warrant a sharp erosion in the company’s market value.

On growth, Elara Securities said there was no meaningful impact on Kaynes Technology’s EMS outlook. It noted that in FY25, excluding Iskraemeco, the second half contributed 67 per cent of sales, compared with 33 per cent in the first half, a trend it expected to continue in FY26. The company’s order book had grown 49 per cent year-on-year to Rs 8,100 crore in Q2FY26, including Iskraemeco, supporting medium-term growth visibility. The brokerage added that Iskraemeco’s revenue was expected to remain stable, with non-smart meter revenue outpacing smart meter revenue over time.

Elara Securities said a key monitorable remained Kaynes Technology’s ability to turn cash flows positive and reduce working capital days. Its base case assumed that cash-flow pressures would ease by Q4FY26, supported by management’s commitment to strengthen internal controls. However, it cautioned that failure to improve working capital metrics could pose downside risks and potentially lead to further valuation de-rating.