Why Did Kaynes Crash 8%? Accounting Concerns Unpacked

Kaynes Technology, a prominent EMS player, is under intense scrutiny following a recent report by Kotak Institutional Equities that flagged concerns about its accounting practices. The stock plunged 14% over two days, including an 8% drop on Friday, December 5, heightening investor unease. As a leading integrated Electronics System Design and Manufacturing (ESDM) partner with over 37 years of expertise, Kaynes serves diverse sectors like automotive, industrial, aerospace, railways, medical, and IoT, offering end-to-end solutions from embedded design and precision manufacturing to lifecycle support. The company operates 16 plants across India, bolstered by strategic acquisitions in Europe and North America. 

Kotak’s Concerns on Kaynes Technologies

Kotak has flagged several critical concerns regarding Kaynes Technology’s financial and accounting practices, raising investor caution. The primary issue concerns the accounting for goodwill and intangible assets following the Iskraemeco acquisition, where customer contracts are converted into intangible assets and amortized over time under Ind AS 103. While legally compliant, this practice allows aggressive profit smoothing, masking true earnings volatility. 

Another significant concern is the surge in contingent liabilities to Rs 520 crore, which constitutes 18% of the net worth, reflecting substantial hidden risks from bank and corporate guarantees linked to subsidiaries. These latent risks emphasize potential balance sheet vulnerabilities tied to operational execution. Kotak also highlights weak disclosure discipline through non-transparent reporting of Rs 180 crore in group company purchases and Rs 510 crore in inter-group payables and receivables, undermining investor trust. 

Additionally, the notably high borrowing cost figure of 17.7% caused concern, although it was explained as a computation mismatch; future debt cost risks persist amid large capital expenditure plans. Lastly, capitalization of Rs 180 crore as technical know-how and prototypes inflates short-term earnings but risks future profit hits if products underperform. Overall, Kotak’s report highlights significant concerns rooted in accounting practices, contingent exposure, and repeated disclosure lapses, urging due diligence and cautious investing in Kaynes Technology.  

Management’s Response: Clarifications and Reassurances

The management of Kaynes Technology acknowledges the issues raised but provides clarifications to ease investors’ concerns. It confirms adherence to Indian accounting standards, explaining that intangible assets from customer contracts are amortized annually, aligning financials with accepted norms rather than manipulating profits. 

On contingent liabilities, management states these guarantees are primarily for operational necessities post-Iskraemeco acquisition, ensuring business continuity, and are not indicative of immediate debt or default risks. Regarding related-party transactions and inter-group financial movements, management admits earlier standalone disclosure lapses but asserts corrections have been made promptly, emphasizing commitment to improved transparency and governance. 

The borrowing cost anomaly is attributed to a technical accounting computation issue, with the effective cost approximated at 10%, mitigating alarm over financing expenses. On the capitalization of R&D and technical assets, management justifies the approach as an industry practice to reflect investments in innovation that will generate future returns, accepting amortization impacts down the line.

With these clarifications, Kaynes’ management aims to reinforce investor confidence, portraying the concerns as manageable accounting and reporting adjustments rather than fundamental business risks.

Q2 & H1 FY26 Financial Performance

Kaynes Technology delivered robust Q2 FY26 results, with revenue reaching Rs 906.2 crore, up 58% YoY, and operational EBITDA at Rs 148 crore, surging 80% YoY with a margin expansion to 16.3% (+190 bps YoY). PAT stood at Rs 121.4 crore, yielding a 13.4% margin. For H1 FY26, revenue grew 47% YoY to Rs 1,579.7 crore, operational EBITDA rose 75% YoY to Rs 261 crore (16.5% margin, +270 bps YoY), and PAT was Rs 196 crore (12.4% margin).

Order Book and Management Guidance

The Q2 FY26 order book expanded to Rs 8,099.4 crore from Rs 5,422.8 crore in Q2 FY25, with monthly inflows rising versus Q1, signalling business health despite supply chain fluctuations. Management expressed confidence in meeting annual profit, EBITDA, and revenue targets. Longer-term, the CFO reaffirmed the USD 1 billion revenue goal by FY28, citing strong visibility. They anticipate hitting these through execution despite quarterly order variations.

Kaynes’ Stock Performance

Kaynes Technology’s share price has eroded sharply since peaking at Rs 7,705 in October 2025, shedding over 40% from that high amid persistent declines. The stock has tumbled around 28% in the past month alone, with a steep 14% plunge in just the last two days exacerbating the downturn. Over six months, it has dropped approximately 19%, while the one-year return stands at a concerning 27% loss, signalling heightened investor unease. 

Conclusion

Though Kaynes Technology boasts stellar Q2 results with revenue up 58% YoY, profits soaring at a 3-year CAGR of 90%, and bold USD 1 billion FY28 guidance, the spotlight has shifted to governance cracks flagged by Kotak.

The biggest red flag? Contingent liabilities ballooning to Rs 520 crore (18% of net worth), tying the parent’s balance sheet directly to subsidiaries like Iskraemeco and Kaynes Electronics. Even with management’s explanations for group purchases and disclosure slips on receivables/payables, doubts linger over aggressive accounting and transparency.

These aren’t isolated slips; they erode trust fast. A 40% stock crash from October peaks proves even the hottest growth story can’t survive governance wobbles. For Kaynes to reclaim its shine, fixing these, starting with transparent reporting and prudent risk management, is non-negotiable. Investors should watch closely not just the fundamentals and growth story of the company, but also governance, as it makes or breaks the long game.

Written By Adhvaitha Nayani BA

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