Red Flags in the Business:
1. Some significant red flags regarding Kernex business practices, totalling approximately ₹53 crore in write-offs and impairments, which represents a substantial erosion of the company’s balance sheet:
A. FY19 Konkan Railways Trade Receivable Write-offs and Settlements (₹25 Crore)
In Fiscal Year 2019, Kernex reported a series of significant write-offs and settlements:
- Konkan Railways Trade Receivable Write-off: ₹20 crores
- Court Settlement: ₹2.5 crore
- An additional ₹2.5 crore was attributed to slow-moving stock
B. Recurring Write-offs and Impairments (FY17-FY19 Totalling ₹18 Crore)
C. FY22 Write-off of Receivable from Sale of Asset (₹4.4 Crore)
D. FY24 Related Party Trade Receivable impairment (₹4.1 Crore)
Most recently, in FY24, Kernex wrote off ₹4.1 crore in trade receivables from a related party**, Comptex Computer System Pvt. Ltd**. A write-off of this magnitude from a related party raises questions about the legitimacy of the transactions, the recoverability of dues from connected entities, and potential conflicts of interest.
Overall Impact: Significant Balance Sheet Erosion
Cumulatively, these write-offs and impairments amount to approximately ₹53 crore. When compared to the total assets of ₹236 crore in FY25, this represents a significant 23% erosion of the company’s balance sheet .
This level of erosion is a major red flag, indicating substantial losses, poor asset quality, and potentially weak financial management. Investors should carefully consider the implications of these recurring issues and casts doubt on the integrity and transparency of Kernex management.