Nomura slashes Kaynes Tech target on smart-meter woes; retains 'Buy'

Global brokerage Nomura has made a downward revision on its target for Kaynes Technology to ₹5,455, from ₹8,478 earlier, even as it maintained a ‘Buy’ rating, citing growth realignment and execution issues in the smart-meter segment, as well as elevated working capital. The new target is based on 35x FY28F earnings per share (EPS), at the lower end of the stock’s historical 35–55x trading band.

Smart-meter issues trigger growth reset

Kaynes’ stock has fallen about 30 per cent over the past month as against a 1.4 per cent rise in the Nifty, largely on worries around accounting and collections in the smart-meter business. Management used a press release and an analyst call on December 8 to clarify these concerns, stating that Kaynes will move away from being a service provider in smart meters and will instead focus on supplying devices, with improved collection terms. Nomura believes the problems are not corporate-governance related but reflect reporting and execution issues, particularly in smart meters.

 

Working capital drag and disclosure lapses weigh on sentiment

Nomura highlighted that working capital in smart meters has been a significant drag and that the company’s decision to de-focus this segment should have been communicated earlier to avoid negative surprises. Management acknowledged lapses in disclosures and said it will improve clarity in future reporting, including taking inputs from external advisors. Working capital normalisation, according to management, is underway, with improvement expected ahead.  CATCH STOCK MARKET LIVE UPDATES TODAY

Shift in growth mix away from smart meters

Given the challenges, Nomura expects Kaynes to reassess its growth ambitions in smart meters and instead drive a stronger push in other verticals such as automotive, railways and aerospace. It estimates the revenue share of smart meters could fall from around 30 per cent in H1FY26 to 17 per cent in H2FY26F and 11 per cent by FY28F, as other segments ramp up.

Earnings estimates and valuation cut, but upside seen

Reflecting lower growth and margin expectations, Nomura has cut its revenue estimates by 5–9 per cent and trimmed Earnings before interest, tax, depreciation and amortisation (Ebitda) margins by 30 basis points (bps), leading to 8–14 per cent EPS downgrades for FY26–28F. On valuations, the target price-t-earnings (P/E) multiple has been reduced to 35x from 50x, citing a slightly weaker growth outlook and the smart-meter overhang.

 

Even so, Nomura argues the current valuation of about 26x FY28F P/E (adjusted for subsidiaries) appears attractive given an expected 40 per cent EPS CAGR over FY26–28F. It sees key catalysts in:

• Working capital days improving to below 90 days by FY26F (from 113 days in 1HFY26),
• Faster ramp-up in non–smart-meter businesses, and
• Better accounting disclosures and transparency.

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