The Kotak report adopted a promoter stake sale in June, after the top of the preliminary public providing (IPO) lock-in interval, the chief govt’s resignation in October, and share offloading by Motilal Oswal Monetary Companies in November, additional exacerbating adverse sentiment. The inventory has now fallen practically 50% from its October peak.
Is that this a chance to purchase the main electronics producer, or a falling knife that traders ought to keep away from?
Is Kaynes’ accounting of acquisitions “ambiguous”?
Kaynes acquired Iskraemeco and a 54% stake in Sensonic for a consideration of ₹88 crore. Nevertheless, the Kotak report has alleged that this acquisition doesn’t correctly mirror within the firm’s investing money outflows or its goodwill on the stability sheet.
Kaynes’ administration has clarified that the majority of the consideration for the acquisitions was in direction of a big buyer contract. So, it has been categorised as an intangible asset to be amortized over the contract’s time period, quite than as goodwill. Given the systematic amortization schedule adopted for intangibles—versus the discretionary, impairment-based therapy for goodwill—Kaynes’ strategy seems extra conservative.
The acknowledged intangible property have been netted off towards goodwill, based on the administration. As for money flows, the corporate seems to have categorized them beneath capex-related money flows, quite than acquisition-related outflows. At worst, this appears like a mis-categorization, quite than an try to mislead traders.
What about Iskraemeco’s sudden flip in fortunes?
Kotak’s report identified the ₹0.6 crore revenue after tax (PAT) reported by Iskraemeco in 2024-25, which stands in stark distinction to its ₹48.9 crore contribution to Kaynes’ consolidated revenue in the course of the fiscal. Contemplating that Kaynes acquired Iskraemeco on 30 September 2024, it may be inferred that Iskraemeco went from reporting a ₹48.3 crore loss within the first half to a ₹48.9 crore revenue within the second half. This conveniently timed turnaround in Iskraemeco has raised eyebrows.
Kaynes’ administration has clarified that Iskraemeco’s loss within the first half was on account of the write-off of outdated stock amounting to about ₹50 crore. This, together with low revenues amid continued mounted prices, had led to the losses throughout H1FY25. This additionally explains the online adverse property of Iskraemeco on the time of its acquisition. The administration has additionally corrected Kotak’s estimate of Iskraemeco’s margin from 28% to a extra palatable 9%.
Following the acquisition, Kaynes has offered company ensures towards funding necessities at Iskraemeco and different subsidiaries to help their enterprise wants. This has helped Iskraemeco clock increased revenues and earnings in H2FY25, however has additionally led to increased contingent liabilities reported by Kaynes. Kotak’s evaluation identified the spike in contingent liabilities from ₹270 crore in 2023-24 to ₹520 crore in 2024-25.
What about R&D capitalization and excessive borrowing prices?
The Kotak evaluation confirmed that 94% of analysis and improvement (R&D) bills incurred by Kaynes have been capitalized in 2024-25. The administration has elaborated on its R&D accounting coverage—experimental R&D bills are acknowledged on the P&L, whereas these anticipated to end in a income stream are capitalized. They’ve pointed to how heavy R&D is vital to the character of the enterprise, and that the combination of bills versus capitalization has remained largely constant over time.
As for the issues raised in regards to the excessive value of borrowing, calculated at 17% in Kotak’s report, the corporate has attributed it to the simplistic technique of calculation. Together with invoice discounting, the price of borrowing would come to about 10%, based on the administration.
Have there been any lapses in disclosures?
The corporate has admitted to inadvertently lacking out on reporting related-party disclosures in its subsidiaries’ standalone statements. The missed disclosures pertain to Kaynes Expertise and Kaynes Electronics Manufacturing’s transactions with Iskraemeco. The administration insists that the underlying financials and schedules embody all the mandatory particulars.
It has taken steps to keep away from such lapses sooner or later, together with connecting its ERP programs to its monetary statements with restricted handbook intervention. It has additionally vouched to enhance shareholder communication, whilst studies recommend a potential change in its auditor.
What about Kaynes’ progress prospects?
Whereas the administration has clarified a lot of the questions raised by Kotak’s evaluation, issues about enterprise fundamentals persist. Regardless of sturdy progress reported in current quarters, a glance beneath the hood reveals that earnings from the Iskraemeco acquisition contributed round 44% of the earnings added by Kaynes in 2024-25. This means sluggish natural progress in its core electronics manufacturing (EMS) enterprise.
The administration has assured traders that it’s going to stay centered on core EMS, and core progress is anticipated to surpass that of tangentially associated subsidiaries. They’ve acquired marquee prospects in electrical automobiles, and have additionally bagged orders for Indian Railways’ Kavach programme, and aerospace and defence orders from unique gear producers.
However its Outsourced Semiconductor Meeting and Take a look at (OSAT) and printed circuit board (PCB) forays are but to yield tangible outcomes. The administration pointed to a few purchasers acquired within the house, however admitted that ready for consumer approvals might result in income recognition being delayed past the initially offered steering. The proof might be within the pudding, and the corporate’s core natural progress in subsequent quarters might be intently watched.
Are there issues about Kaynes’ money flows?
Kaynes’ strained money flows increase a big query mark on its fundamentals. Its cash-flow conversion expanded from 135 to 157 days in 2024-25, and is anticipated to stay strained on account of heavy capex necessities. The administration has acknowledged that free money flows might not flip optimistic any time quickly, regardless of optimistic operational money flows.
Making issues worse, debtors and uncertain debt have grown. As of 2025-26, quarterly revenues have remained stagnant, whereas debtors have virtually doubled to ₹1,120 crore, and the corporate has provisioned ₹55 crore in direction of uncertain debt. Kaynes’ payables on account of Iskraemeco value ₹46 crore have additionally been due for over a 12 months, which it hopes to clear by the top of this fiscal.
The administration has referred to as this out as an industry-wide phenomenon, whereas remaining hopeful of recovering the uncertain debt and reversing the provisions in subsequent quarters. However traders ought to go by tangible enchancment on the bottom, quite than guarantees of restoration.
Out of about ₹700 crore in receivables at Iskraemeco, the administration goals to low cost about ₹250 crore over the close to time period. It additionally plans to step by step transition its subsidiaries from system manufacturing to product solutioning, which ought to relieve among the pressure on working capital. As for delays in authorities grants and subsidies, the corporate has tasked a crew to smoothen its transactions with the federal government. It doesn’t count on any pressure on mission execution or on its books on account of delays in authorities receivables.
Detailed queries despatched to Kaynes remained unanswered till press time.
Are there any silver linings?
Amid talks of required capital infusion, the administration has assured that the corporate neither wants nor plans any promoter dilution within the close to time period. The inventory also can draw technical help from its vital help stage round ₹4,000 apiece.
After the current sharp correction, it’s buying and selling at a palatable worth/earnings-to-growth (PEG) ratio of 0.8x that leaves room for upside as soon as the Avenue is happy with the administration’s responses to Kotak’s implications.
For extra such evaluation, learn Revenue Pulse.
Ananya Roy is the founding father of Credibull Capital, a SEBI-registered funding adviser. X: @ananyaroycfa
Disclosure: The creator doesn’t maintain shares of the businesses mentioned. The views expressed are for informational functions solely and shouldn’t be thought of funding recommendation. Readers are inspired to conduct their very own analysis and seek the advice of a monetary skilled earlier than making any funding selections.
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