Kaynes Tech Eyes Smart Meter Spin-Off to Ease Working Capital Strain

Kaynes Technology India Ltd. is actively exploring a strategic spin-off of its smart metering business into a dedicated special purpose vehicle. This significant move aims to directly address the substantial working-capital pressure currently exerted by the segment. Discussions are underway with bankers, investors, and various strategic partners.

Managing Director Muthukumar Narayanaswamy highlighted that the smart metering division accounts for approximately 70% of Kaynes’ total receivables. Despite this, it contributes only 25-30% of the company’s overall revenue, indicating a disproportionate impact on its balance sheet.

Strategic Rationale and Business Model Differences

The company’s core electronics manufacturing services (EMS) business remains its primary revenue engine, generating 60-65% of its income. Narayanaswamy explained that the metering business operates on a distinct model, involving both capital and operating expenditures that directly influence receivables, unlike the EMS segment.

This idea of restructuring the metering operations is not new, having been mentioned during the Q1 FY27 earnings call. Management had previously considered separating the service-provider portion to prevent its receivables from impacting Kaynes’ main balance sheet.

Operational Adjustments and Future Outlook

To mitigate the immediate working-capital issues, Kaynes deliberately scaled back its smart metering business, prioritizing collections. This decision led to a 12% decrease in metering revenue during Q1 FY27, falling to Rs 204 crore from Rs 231 crore in the prior year.

Management’s strategy involves reducing metering growth to intensify focus on the core EMS business while actively improving collections. Narayanaswamy anticipates smart metering receivables will remain elevated in Q2 but projects a decline starting from Q3, leading to an overall improvement in working capital by the third and fourth quarters.

Kaynes Technology maintains an optimistic growth outlook despite these operational adjustments. The company aims to grow at twice the market rate, projecting an overall growth of 35-40% under current market conditions. Further details regarding the proposed SPV are expected around February.