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What is the story about?
Ramesh Kunhikannan, Executive Vice Chairman of Mumbai-based semiconductor manufacturing company, Kaynes Technology, said the company expects operating and free cash flows will turn positive by the end of the current financial year 2025-26 (FY26). The company's stock continued its slide with another 7% drop on December 5. It has shed more than 23% over the past year.
Kunhikannan also addressed concerns raised in a recent Kotak analyst report, saying a “miss” in standalone disclosures is being corrected and that consolidated financials remain accurate.
The company, which has a current market capitalisation of ₹32,213.50 crore, has seen its shares lose more than 23% over the last year.
These are edited excerpts of the interview.
Q: There's been this Kotak analyst report, which has been doing the rounds. You’ve responded to the exchanges this morning. I just want to start by addressing a few of the points the note pointed out. One is multiple inconsistencies - what the analyst points out between disclosures that you've made, which is Keynes Technology and your subsidiaries, like the Smart Metering company Iskraemeco and Keynes Electronic Manufacturing. This is regarding intercompany transactions, payables, and receivables. And Iskraemeco’s disclosures show that some of the purchases, payables, receivables, etc., involving Keynes Technology, that is the parent, and Keynes Electronic Manufacturing, do not appear in the corresponding disclosures of the other two entities. Could you clarify what exactly is happening and whether, when you present consolidated financials, all of this will be accounted for? Will they all be proper?
A: If you see in the balance sheet and profit and loss (P&L), there is no mistake at all. It is only in the standalone statements where we have missed, which we clearly clarified. Notes to accounts - it is missing. That's all. That is also in one company. But if you see the P&L as well as the balance sheet, it is all appearing. There is no inconsistency, whatever he is saying. However, we agree that there is a miss, and we will take corrective action and move forward.
Q: So all these intercompany transactions are being corrected in the consolidated statements?
A: As far as the balance sheet and P&L is concerned.
Also Read | 'Avoid bottom fishing', JPMorgan's advice on Kaynes Tech, even as it remains 'overweight'
Q: Just one more point on this smart metering company. It's reported a significant amount of receivables due from its parent, ₹46 crore outstanding for over a year. Could you talk to us a little bit about the reason behind this delayed collection and the cash position at the subsidiary?
A: This is an aged receivable in Iskraemeco’s books, which has been there since we acquired the company, and we will be reconciling and closing it.
Q: By when?
A: By this financial year's end, we should be able to close it.
Q: So you're saying when you acquired this, this was already there? So it's a delayed collection, but you will collect it in this financial year?
A: Yes.
Q: Do you feel there is a need to review and strengthen your internal controls and disclosure policy across subsidiaries, given all of these points which have been highlighted?
A: We are improving as far as this is concerned. As of today, I have put six controls in place, and I feel that the system is adequate, but we will review this once again.
Q: Would you be reaching out to other stakeholders as well? Have others reached out to you?
A: Many of them have reached out to us. We have clarified. That is why today we have filed a clarification on the exchange, also covering all these things, and we are also planning to have a group conference call for everybody to clarify their viewpoints.
Q: A quick question with regard to your working capital cycle — that's been a pain point. That's been elongated. So tell us, what is the target level? The cash flows have also been negative. When does that turn positive? Because both your operating cash flow and your free cash flow have been negative, and that's been a bit of a pain point.
A: This is a capital-intensive business. However, we are working, and by the financial year end, we will bring it to sub-90 days in the cash cycle. So with that, it will become positive. And we have plans in place to achieve this.
Q: By when will it come down to less than 90 days?
A: By this year-end.
Q: And will you turn free cash flow positive, operating cash flow positive?
A: Yes, yes. By this March, it will be wholly positive.
Q: The accounting changes that you are going to undertake, will they reflect from the next fiscal year onwards? How quickly will you be able to implement them?
A: There is no major change. It is only one line item that is omitted. I don't know how to explain this. It is corrected in one, but otherwise, if you see the balance sheet, P&L, everywhere, it is tallying.
Catch all the latest updates from the stock market here
Kunhikannan also addressed concerns raised in a recent Kotak analyst report, saying a “miss” in standalone disclosures is being corrected and that consolidated financials remain accurate.
The company, which has a current market capitalisation of ₹32,213.50 crore, has seen its shares lose more than 23% over the last year.
These are edited excerpts of the interview.
Q: There's been this Kotak analyst report, which has been doing the rounds. You’ve responded to the exchanges this morning. I just want to start by addressing a few of the points the note pointed out. One is multiple inconsistencies - what the analyst points out between disclosures that you've made, which is Keynes Technology and your subsidiaries, like the Smart Metering company Iskraemeco and Keynes Electronic Manufacturing. This is regarding intercompany transactions, payables, and receivables. And Iskraemeco’s disclosures show that some of the purchases, payables, receivables, etc., involving Keynes Technology, that is the parent, and Keynes Electronic Manufacturing, do not appear in the corresponding disclosures of the other two entities. Could you clarify what exactly is happening and whether, when you present consolidated financials, all of this will be accounted for? Will they all be proper?
A: If you see in the balance sheet and profit and loss (P&L), there is no mistake at all. It is only in the standalone statements where we have missed, which we clearly clarified. Notes to accounts - it is missing. That's all. That is also in one company. But if you see the P&L as well as the balance sheet, it is all appearing. There is no inconsistency, whatever he is saying. However, we agree that there is a miss, and we will take corrective action and move forward.
Q: So all these intercompany transactions are being corrected in the consolidated statements?
A: As far as the balance sheet and P&L is concerned.
Also Read | 'Avoid bottom fishing', JPMorgan's advice on Kaynes Tech, even as it remains 'overweight'
Q: Just one more point on this smart metering company. It's reported a significant amount of receivables due from its parent, ₹46 crore outstanding for over a year. Could you talk to us a little bit about the reason behind this delayed collection and the cash position at the subsidiary?
A: This is an aged receivable in Iskraemeco’s books, which has been there since we acquired the company, and we will be reconciling and closing it.
Q: By when?
A: By this financial year's end, we should be able to close it.
Q: So you're saying when you acquired this, this was already there? So it's a delayed collection, but you will collect it in this financial year?
A: Yes.
Q: Do you feel there is a need to review and strengthen your internal controls and disclosure policy across subsidiaries, given all of these points which have been highlighted?
A: We are improving as far as this is concerned. As of today, I have put six controls in place, and I feel that the system is adequate, but we will review this once again.
Q: Would you be reaching out to other stakeholders as well? Have others reached out to you?
A: Many of them have reached out to us. We have clarified. That is why today we have filed a clarification on the exchange, also covering all these things, and we are also planning to have a group conference call for everybody to clarify their viewpoints.
Q: A quick question with regard to your working capital cycle — that's been a pain point. That's been elongated. So tell us, what is the target level? The cash flows have also been negative. When does that turn positive? Because both your operating cash flow and your free cash flow have been negative, and that's been a bit of a pain point.
A: This is a capital-intensive business. However, we are working, and by the financial year end, we will bring it to sub-90 days in the cash cycle. So with that, it will become positive. And we have plans in place to achieve this.
Q: By when will it come down to less than 90 days?
A: By this year-end.
Q: And will you turn free cash flow positive, operating cash flow positive?
A: Yes, yes. By this March, it will be wholly positive.
Q: The accounting changes that you are going to undertake, will they reflect from the next fiscal year onwards? How quickly will you be able to implement them?
A: There is no major change. It is only one line item that is omitted. I don't know how to explain this. It is corrected in one, but otherwise, if you see the balance sheet, P&L, everywhere, it is tallying.
Catch all the latest updates from the stock market here
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