boAt's ₹1,500 Crore IPO Hit by Auditor Red Flags on Mismatched Financial Statements

Imagine Marketing Ltd., parent company of boAt, is preparing to launch its stock market debut with a valuation of ₹1,500 crores. However, there are serious accounting issues that might hinder the company from going public. The Draft Red Herring Prospectus published by the company highlights multiple instances of financial reporting irregularities identified by BSR & Co. LLP, Statutory Auditors, covering three financial years. Among the various irregularities, there appear to be ongoing discrepancies between the company’s internal records and the records submitted to their financial lenders.

Core Issue

For three consecutive financial years ending March 2023, 2024, and 2025, the quarterly financial data submitted to blending institutions had consistently differed from the company’s internal records. The presence of such accounting discrepancies within a three-year period raises several questions regarding the viability of a soundly established financial reporting infrastructure and casts doubt on the validity and reliability of all financial data maintained by the organization. Since the company has decided to pursue investment from the public capital markets, the existence of persistent discrepancies between internal accounting records and banking institutions poses an extreme credibility issue for Imagine Marketing Ltd.

Financial Discrepancies

The boAt Group's corporate structure demonstrates disturbing patterns across its many businesses:

I. Negative cash flows were identified in the primary operating business for fiscal years ended March 2023 and March 2024. Additionally, as subsidiaries, Dive Marketing Private Limited reported cash outflows during fiscal 2025 while HOB Ventures Limited reported cash outflows during both fiscal years ending March 2024 and March 2023.

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II. There are clear indications that cash generation issues permeate the entire group of companies affiliated with boAt. Based on information in the audit reports, Califonix Tech and Manufacturing Private Limited, joint venture reported a cash deficit for fiscal 2023 while Kimirica Lifestyle Private Limited, associated company was in a negative cash position for two consecutive years ending March 2024.

III. The most troubling piece relates to the substantial doubt expressed by auditors regarding the ability of two of the company's large international subsidiaries, Kaha Pte Ltd and Imagine Marketing Singapore Pte Ltd, to have sufficient resources to meet their current obligations based on all the assessments performed in fiscal years 2024 and 2023.

IV. In addition, the audit results suggest that one subsidiary, as part of its treasury management process, used short-term borrowings to fund projects with long-term timeframes during fiscal years 2023 and 2024. This strategy puts companies at extreme risk, companies that finance long-term projects with short-term debt will find it difficult to meet repayment obligations when lenders require the company to return money.

The auditors have documented several governance failures that resulted from issues in financial management.

I. Compensation Issues: In 2023, the company's executive salaries were over the statutory limit allowed by Section 197 of The Companies Act, 2013. The shareholders later approved this amount by way of an official waiver, but the initial violation indicates a governance oversight.

II. Unpaid Regulatory Dues: The company has not paid undisputed government dues for 2023 or for 2025.

III. Digital record-keeping deficiencies: The fiscal year 2025 audits of Dive Marketing Private Limited and HOB Ventures Private Limited revealed audit trails were lacking functionality within the respective accounting systems. Each respective accounting system failed to meet the requirements as set forth in Rule 11(g) of The Companies (Audit and Auditors) Rules, 2014.

Additionally, the following compliance deficiencies were identified:

• Inadequate backup processes were present for the digital accounting records on the physical servers located in India for Dive Marketing Private Limited and HOB Ventures Private Limited during fiscal year 2023.
• Incomplete physical inventories of tangible assets were performed in 2023 due to changes in internal policies governing the process.
• The investment structures that were established through Kaha Pte Ltd by way of Imagine Marketing Singapore Pte. Ltd need to be more clearly disclosed in the financial statements.

Management is unable to offer any assurance on the findings made by the company's auditor as highlighted in its regulatory filing. Within its regulatory filing, boAt acknowledged these auditor findings and described certain corrective measures, including securing shareholder approval for the compensation overage and establishing improved reporting protocols.

The management filing was also accompanied by a footnote that indicated that the company expects to face further auditor observations in future filings, and any unresolved auditor observations could negatively affect the company's financial performance going forward. Management's acknowledgement of a potential for an auditor observation issue for subsequent quarters suggests that the company cannot provide an assurance that the same problems will not occur again in the future.

Prospective investors in boAt's IPO are presented with an array of complexities and a need for extreme caution when assessing their exposure to risk. Repeated patterns of discrepancies between internal records and bank submissions over multiple annual cycles suggest a systematic failure rather than one-off errors. This indicates a significant lack of control over financial reporting and how data is governed within the organization.

The high cash burn rate of its subsidiaries and the financial uncertainty surrounding the viability of international operations raise additional concerns regarding the business model's sustainability and the flexibility to sustain future growth through self-funding.

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While boAt has achieved significant brand recognition in the consumer technology sector in India and enjoys an excellent market position across certain product categories, financial discipline and accountability for good governance are equally important performance drivers for any publicly traded company.

Operating in a highly competitive environment with reduced profit margins requires disciplined capital management and integrity of reporting as essential parts of operations. Current audit findings indicate that both of these are areas where boAt is experiencing performance deficiencies. The base-line assessment for investment managers will be a comparison of boAt's market position and growth opportunities against its documented deficiencies in financial management and governance. The success of boAt's public offering will hinge on how well the market perceives this appraisal.

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