Kaynes Tech shares extend fall, sink 8% today as Kotak flags disclosure gaps; co issues clarification

Shares of Kaynes Technology India Ltd continued their decline for the third straight session on Friday after Kotak Institutional Equities highlighted multiple inconsistencies in the company's FY25 related-party disclosures. The stock slipped 8.41 per cent to a day's low of Rs 4,560.

Kotak identified mismatches across filings by Kaynes Technology, Kaynes Electronics Manufacturing and subsidiary Iskraemeco, prompting concerns over disclosure quality. Kaynes, in its statement, said: "Such external perspectives help deepen understanding, broaden dialogue, and play an important role in shaping informed investor decisions. We also believe it is our responsibility to provide clear, factual information so that the investor community can evaluate the Company with confidence."

Below are Kotak's key observations and the company's detailed clarification:

Goodwill Recognition and Reserve Adjustments

Kotak's observation: Ambiguity in goodwill recognition and reserve adjustments arising from acquisitions.

Kaynes' response: "As per Ind AS 103- Business Combinations, previously unrecognised Intangible Assets can be recognised as a part of acquisition accounting. Since a major part of the consideration for this acquisition is for a contract that Iskraemeco has entered into, Customer Contracts can be recognised as an Intangible Asset and amortized over the term of the contract. The Intangible assets recognized was netted off with the goodwill. Considering the unique nature of these Intangible Assets, Goodwill and other Intangible Assets are evaluated annually."

Surge in Contingent Liabilities

Kotak's observation: Contingent liabilities increased to Rs 520 crore, equivalent to 18 per cent of net worth.

Kaynes' response: "Major additions during the year are: Performance Bank Guarantee for Iskraemeco Projects - Rs.96.8 Cr and corporate guarantee issued to subsidiary companies Rs. 132.5 Cr (Kaynes Electronics Rs. 122.5 Cr + Iskraemeco Rs. 70 Cr). These were necessitated due to funding requirements at Iskraemeco subsequent to the acquisition."

Unreported Related-Party Purchases

Kotak's observation: Purchases of Rs 180 crore from Kaynes Electronics Manufacturing in FY25 were not disclosed in related-party filings.

Kaynes' response: "These related party transactions were eliminated in the consolidated financial statements as per Indian Accounting Standards. However, they were inadvertently not disclosed in the standalone financial statements. This has since been rectified and has been noted for future compliance. This transaction was part of the overall financial statement in both the entities."

Missing Year-End Balances

Kotak's observation: Year-end payables of Rs 320 crore to Kaynes Technology and Rs 180 crore to Kaynes Electronics Manufacturing, along with receivables of Rs 190 crore, were not reflected in standalone related-party disclosures.

Kaynes' response: "These related party transactions were eliminated in the consolidated financial statements as per Indian Accounting Standards. However, they were inadvertently not disclosed in the standalone financial statements. This has since been rectified and has been noted for future compliance. This transaction was part of the overall financial statement in both the entities."

High Borrowing Costs

Kotak's observation: Average borrowing cost for FY25 stood at 17.7 per cent.

Kaynes' response: "While calculating the interest cost on average borrowings we need to consider Bill discounting. The interest cost will work out to 10 per cent including bill discounting. Please note that with similar observation the average borrowing cost would be 25.3 per cent for FY 2024 against 17.7 per cent of FY 2025."

Capitalisation of Technical Know-How

Kotak's observation: Capitalisation of Rs 180 crore, or 6.5 per cent of revenue, under technical know-how, including designs and prototypes.

Kaynes' response: "Intangible Assets recognised of Rs. 115 Cr on account of Large Customer contracts and Rs. 26 Cr development cost (related to Iskrameco acquisition) and Intangible assets generated as part of Inhouse R&D activities Rs. 39 Cr."