In a significant development at Kaynes Technologies Ltd., Kotak Institutional Equities has raised some serious concerns surrounding the company's FY25 annual report, highlighting "ambiguous" and rising financial strain from the aggressive expansion model.
In its latest note, Kotak has highlighted the outsized impact of Kaynes' smart metering acquisition, Iskraemeco. While the smart metering segment contributed to 44% of Kaynes' profit growth for FY25, the brokerage pointed out the subsidiary's 28% reported net margin during the second half of the year. They have also flagged an implied payback period of six months.
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Kotak, in the report, criticised the "ambiguous accounting treatment" of the Iskraemeco acquisition.
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While Kaynes had acquired Iskraemeco and Sensonic for Rs 8.3 crore, the consolidated balance sheet reflected complex adjustments and goodwill rather than a simple and straightforward accounting of the purchase price.
Kotak has also raised concerns over Kaynes Tech's financial health. The company reported negative cash flow for the year, largely driven by a 22-day increase in its cash conversion cycle and a large capital expenditure.
Kotak says Kaynes capitalised Rs 180 crore, or 6.5% of revenue, as additions to "technical know-how". The brokerage firm flags how the company has not listed details for the said 'know-hows'.
There are discrepancies even in cash flow reporting, including a mismatch between cash spent on fixed assets and the actual asset additions recorded. There is also 'lack of consistency' in related third-party transaction disclosures between the parent company and the subsidiaries.
Despite the aggressive capex for its semiconductor (OSAT) and printed circuit board (PCB) businesses, Kotak says government grants covering these investments remain pending.
As such, the brokerage has maintained a 'reduce' rating on Kaynes Tech, which closed at Rs 4,971, with cuts of more than 6%. Over the last 30 days, shares of Kaynes have fallen more than 25%.
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