First red flags for electronics firms as Kaynes goes under the lens

Subscribe to enjoy similar stories. A wave of warnings over Kaynes Technology’s finances has rattled India’s electronics manufacturing sector (EMS), sharpening focus on the industry’s ability to fund the heavy investments required to tap upcoming government incentives. Brokerage firm Kotak Securities’ notes on the company this month has had a cascade effect on the wider sector.

Since 1 December, shares of Dixon, Syrma and Kaynes have crashed 11-30%, as analysts noted issues with cash flow, availability of working capital, and ability to expand manufacturing to seek government incentives. On 3 December, a Kotak Securities note reported “ambiguous accounting" of revenue accounted for from one of Kaynes’ acquisitions, as well as “inconsistencies" in related party transactions. The note also questioned if the company’s current operating cash flow would permit its planned capital expenditures in new projects.

Despite shaky investor confidence, analysts remain optimistic for the long run, as India’s four top electronics firms retain the exponential gains they’ve brought for investors since their listings. Over the past week, after Kotak Securities' note. there were similar flags by the likes of JM Financial and JPMorgan, raising concern around financial disclosures and operating cash flow at Kaynes.

They raised questions around the company’s accounting discrepancies, and if it had enough capital to grow at the pace it intended to. On 5 December, Kaynes submitted a response on the BSE, admitting to “inadvertent non-disclosure" of related party transactions in its financial statements. And, on 8 December, the company's management, headed by executive vice-chairman and founder Ramesh Kannan, addressed these concerns in a call