KOCHI: While Kitex Garments Ltd’s (KGL) ambitious Rs3,290 crore Telangana project advances at full throttle, the group’s US-based associate, Kitex US LLC, is causing the management considerable headaches.
Meanwhile, Kitex Garments has earned a net profit of Rs39.94 crore for the quarter ended September 30, 2024, more than doubling the net profit the company reported for the same period in the earlier year at Rs19.22 crore .
The auditors of Kitex group has been raising concerns about the US entity consistently for the past few quarters citing that the US company is in bad shape financially, and has even eroded its net worth fully due to the continued losses incurred by it over the years.
However, the management has been defending the US company’s financial strength, and even stated that the company can very well be brought back on track and the lost net worth could be recovered through concerted steps.
Repeated ‘qualification’
The auditors have repeatedly ‘qualified’ the financial statements of the parent company Kitex Garments Ltd (KGL), a publicly owned company, listed on both stock markets, NSE, citing the poor financials of the US entity.
On the other hand, the management has expressed its optimism about the company adding that effective steps have already been initiated to bring the company back into health.
Qualifying the financials of a company by its auditors is alwys viewed seriously by the financial experts and shareholders as it is considered a rare step, and not one often taken by auditors.
Qualify an account means….
The word ‘qualify’ may sound a bit misfit and confusing to a layman.
(To qualify the financial statements of a company means that the auditors have identified specific issues or uncertainties within the financial records, which they believe could affect the accuracy or completeness of the financial statements, and have thus issued a qualified opinion to signal these concerns to stakeholders.)
Kitex Garments has an investment of Rs27.76 crore in Kitex USA LLC, the associate company. With the repeated losses over the years, Kitex USA’s net worth has already been eroded, according to the auditors
However, the management said it has determined the carrying value of the investment in the said Associate as recoverable based on valuations performed, after considering proposed changes in the business plan, forecasted future revenue growth and increased margin contribution.
“For the half year ended September 30, 2024, the management of KGL has not been able to provide corroborative evidence to substantiate the reasonableness of the abovementioned unobservable inputs. Accordingly, we are unable to comment on the recoverability of the carrying value of the investment in Kitex USA LLC as of September 30, 2024,” the auditors stated in their audit opinion.
