Kaynes Technology India Ltd. is considering a variety of options for its smart metering business, including the formation of a special purpose vehicle (SPV) to reduce the impact of the segment’s high receivables on its balance sheet.
Managing Director Muthukumar Narayanaswamy told NDTV Profit that Kaynes is working with bankers, investors and potential strategic partners to evaluate different structures for the business.
The management is looking forward to having more clarity and possibly sharing “positive news” around February, he said.
The proposed restructuring comes as smart metering has become a significant contribution to Kaynes Technology's receivables despite it being a relatively small portion of its revenue.
Kaynes Exploring SPV Structure
Narayanaswamy said the management is already working on various models that could include spinning off a part of the smart metering business into an SPV.
The goal is to reduce the extent to which the metering business impacts Kaynes' balance sheet and, in particular, its working capital and receivables.
As such, it is talking to bankers and investors about the possibility and also looking for strategic partners who might be willing to help with the transaction.
But Kaynes has not yet disclosed the final structure of the SPV, the exact portion of the business that could be transferred, who would be the investors or strategic partners, or what would be the financial terms for any transaction.
Smart Metering Accounts For 70% Of Receivables
The scale of the issue is evident from the contribution of smart metering to the company's receivables.
According to Narayanaswamy, the smart metering business accounts for around 70% of Kaynes' receivables, while contributing only 25-30% of total revenue.
Kaynes continues to generate about 60%-65% of its revenue from its core electronics manufacturing services (EMS) business.
This difference between revenue contribution and receivables exposure is one of the main reasons for management to review the business model.
Smart metering also has a different operating structure from Kaynes’ core EMS business, with both capital expenditure and operating expenditure components influencing the receivables cycle.
Business Model Review Was Already Underway
The restructuring discussion is not new as well.
In the company’s Q1 FY27 earnings call, management had said it was assessing different models for its smart metering operations. One option would be to separate the service provider part of the business so the receivables associated with it would not affect Kaynes’ balance sheet.
The new comments discuss the process in more detail, with the company getting in touch with bankers and investors and even with strategic partners.
The proposed structure would allow Kaynes to keep on enjoying the smart metering opportunity while also reducing the working capital burden on its own balance sheet.
Kaynes Has Slowed Smart Metering Growth
In response, management has already taken measures to solve the collection problem by deliberately slowing growth in the smart metering segment.
Kaynes reported smart metering revenue of Rs 204 crore in Q1 FY27, compared with Rs 231 crore in the corresponding quarter a year earlier. This represents a decline of about 12% year-on-year.
Management said it consciously reduced metering growth in order to concentrate on collections and put a greater emphasis on its core EMS business.
This decision is a trade-off between near-term revenue growth and balance-sheet discipline. Kaynes expects to increase collections and gradually reduce the receivables burden of the segment by dialing back on metering revenue.
Receivables Expected To Improve From Q3
Narayanaswamy expects smart metering receivables to remain elevated during the second quarter but said the situation should begin improving from the third quarter of FY27.
He expects the reduced metering revenue to eventually result in fewer receivables.
The company intends to maintain a strong working capital position in the third and fourth quarters, and thus its working capital position will be improved.
The timing of this will be closely watched by investors because the ability to convert revenue into cash is still a key factor in assessing the financial impact of the smart metering business.
Management Maintains Growth Ambition
Even though it’s focused on working capital and the decision to moderate smart metering growth, Kaynes is confident about its general growth outlook.
Narayanaswamy added that the company continues to expect growth at about twice the market rate.
When asked for an absolute growth range under current market conditions, he indicated that 35-40% growth is currently possible.
The company's strategy therefore seems to be to maintain growth in the core EMS business and reorganize smart metering operations to reduce their balance sheet impact.
Core EMS Business Still Important
Kaynes' EMS operations are still the principal source of revenue, contributing approximately 60-65% of the total.
Management’s decision to focus more on the core EMS business would also strengthen the company’s working capital profile if smart metering receivables are starting to decline as expected.
The strategy also reflects the different financial characteristics of the two businesses. Smart metering can provide significant growth opportunities, but its working capital requirements and receivables cycle can put pressure on the balance sheet.
A potential SPV would allow the company to separate some of these financial requirements from its core operations.
What Investors Should Watch
The proposed smart metering restructuring is still at an exploratory stage, and there are many unknown details.
Investors will be watching for clarity on the SPV structure, potential strategic partners, the portion of the business to be transferred, funding arrangements and financial terms.
The timing of the expected improvement in receivables will also be important. Management expects smart metering receivables to remain elevated in Q2 but begin declining from Q3, with working capital improving during Q3 and Q4.
At the same time, investors will have to assess whether the company’s core EMS business can deliver the targeted 35-40% growth while the smart metering segment is deliberately moderated.
Kaynes Technology’s strategy is, for now, to balance growth opportunities in smart metering with tighter working capital management. The next big catalyst could come in February, when management hopes to provide more clarity on the proposed restructuring and potential SPV.
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