BoAt's auditors have raised concerns regarding discrepancies in the financial data provided to lenders, compliance challenges, and operational shortcomings across its subsidiaries, as indicated in the consumer electronics maker’s updated draft red herring prospectus (DRHP).

These observations, revealed after the firm filed the document over a month ago, come to light as the Gurugram-based company endeavors to pursue a second attempt at an initial public offering (IPO).

Auditors BSR & Co LLP noted that the quarterly financial statements submitted to banks did not correspond with the company’s financial books for FY23, FY24, and FY25.

The review also highlighted instances where short-term borrowings were utilized for long-term needs of subsidiaries and pointed out various financial control deficiencies during the audit period. What are the compliance issues?

Additionally, the audit flagged significant uncertainties surrounding the ability of two overseas subsidiaries — Kaha Pte Ltd and Imagine Marketing Singapore Pte Ltd — to meet their liabilities for FY23 and FY24. Other concerns included overdue statutory dues, failure to comply with mandatory audit-trail requirements for subsidiaries, insufficient backups of accounting records, and inadequate physical verification of plant and equipment in FY23.

In FY23, director remuneration also surpassed the limits prescribed by the Companies Act, a matter that was later rectified with shareholder approval.

BoAt stated it has taken measures to resolve numerous issues, such as reconciling inconsistent data, implementing compliant accounting systems, and obtaining necessary shareholder approvals.

However, the auditors cautioned that there is no guarantee similar issues won’t arise again, emphasizing the importance of continued efforts to enhance internal processes. What does this mean for BoAt’s IPO plans?

These findings accompany further disclosures in BoAt’s Rs 1,500-crore offering, which includes a fresh issue of Rs 500 crore and a Rs 1,000-crore offer of sale by founders Amman Gupta and Sameer Mehta, along with early investors such as Warburg Pincus, Fireside Ventures, and Qualcomm Ventures. The current issue size is smaller than the previously proposed Rs 2,000-crore float. What is the market backdrop?

The filing also describes the context in which BoAt is preparing to enter the stock market.

After two years of losses, the company has returned to profitability, yet it is facing a slowdown within the wearables segment in India, its main area of focus, where increasing competition and pricing pressures have emerged across the audio accessories and smartwatch markets.

How will investors react?

As investors evaluate the forthcoming offer, BoAt’s scale and brand reputation will be considered alongside the audit findings and compliance gaps, providing a comprehensive view of the company's operational dynamics and governance framework.