Kaynes Technology’s robust FY25 growth has come under scrutiny as multiple brokerages — including Kotak Institutional Equities, BNP Paribas and Investec — flag concerns over the company’s accounting practices, capital allocation and mounting working-capital stress.
Kotak Institutional Equities, in its latest report, raised several red flags on accounting clarity, capital allocation and dependence on a recently acquired smart metering business.
7 key concerns
The report has highlighted seven key concerns, including heavy reliance on Iskraemeco for revenue and profit, ambiguous goodwill and reserve adjustments, a 22-day increase in cash conversion cycle, high capex driving negative free cash flow, and inconsistencies in related-party transaction disclosures.
Unusual trends
Kaynes reported FY25 revenue of ₹2,720 crore, up 51 per cent year-on-year, driven by the consolidation of Iskraemeco’s smart metering business for six months following its acquisition on September 30, 2024.
Iskraemeco contributed ₹48.9 crore to FY25 consolidated profit, making up for 44 per cent of increase in PAT in FY25, it said. Most of Iskraemeco’s full-year revenues of ₹620 crore and ₹48.9 crore profit accrued after the acquisition in H2FY25.
However, Kotak pointed out unusual trends: an implied 28 per cent net margin in the second half, a sharp swing from a ₹48.3 crore first-half loss, and a payback period of less than six months for the acquisition.
Kaynes acquired Iskraemeco and Sensonic (54 per cent stake) for ₹88.3 crore, recognising ₹114 crore in goodwill. Yet the consolidated balance sheet shows no corresponding rise in goodwill, Kotak noted.
Instead, it cited a net negative adjustment of ₹1 crore to reserves and a ₹56.1 crore increase in general reserves. Management attributed this to the recognition of a contract-related intangible asset netted against goodwill. But Kotak highlighted the absence of disclosed intangible asset additions or fair-value adjustments.
The brokerage also pointed to cash flow presentation concerns, as ₹72.5 crore of acquisition payment does not appear as a cash outflow in the consolidated cash flow statement due to consolidation eliminations.
The report flagged a 22-day deterioration in the cash conversion cycle, alongside substantial capital expenditure that pushed free cash flow into negative territory. Ongoing capex needs and pending government grants were identified as additional pressure points.
BNP Paribas, reiterated a Neutral rating, highlighting persistent concerns around Kaynes Tech’s balance-sheet stress and working-capital intensity.
The brokerage trimmed FY27–28 earnings estimates due to higher financing costs and expects the stock should continue to trade at a valuation discount to B2C peers given funding gaps, execution risks and muted near-term margin expansion.
Investec maintained a Sell rating on Kaynes (at ₹5,760 target price), warning that FY25 and H1 FY26 results reveal increasing dependence on the Iskraemeco smart-metering acquisition, while the company’s core EMS business continues to stagnate The brokerage highlighted sharp deterioration in working-capital metrics — debtors and inventories rising significantly, provisions increasing, and receivables from Iskraemeco more than doubling — alongside weak cash conversion.
It may be recalled that Kaynes Technology’s CEO, Rajesh Sharma had unexpectedly resigned in October.
Disclosure gaps
Kotak also mentioned inconsistencies in related-party transaction disclosures, adding to the governance concerns surrounding the rapid expansion and acquisitions.
Investec highlighted slow progress on OSAT and PCB investments, with minimal capital deployment and pending subsidy receipts.
The stock closed 6.17 per cent lower on the BSE at ₹4,978.60 on Thursday.