Financial Shenanigans
Financial Shenanigans — Onyx Biotec Limited (ONYX)
The forensic verdict on Onyx Biotec is Elevated-to-High risk (62 / 100) — not on evidence of misconduct, but because the IPO-year income statement does not reconcile to the cash-flow statement and the governance scaffolding around the November 2024 listing is thin. Over five years the company reported ₹13.56 crore of cumulative net income while generating only ₹3.90 crore of operating cash and burning ₹32.35 crore of free cash flow. Other income jumped 9× in the listing year and then normalised; debtor days tripled from 47 to 144 between FY2023 and FY2026; operating margin fell from 16.76% to 4.89% in the first full year as a public company. None of this is a fraud accusation — the statutory auditor's report is unqualified — but the pattern of "paper profits that never become cash" is the cardinal earnings-quality flag in the forensic playbook, and it is unusually loud here.
1. The Forensic Verdict
Forensic Risk Score (0-100)
Red Flags
Yellow Flags
5-yr CFO / Net Income
5-yr FCF / Net Income
FY24-25 Soft Assets vs Revenue Growth (pp)
FY25 Other Income vs FY24 (x)
The two biggest concerns are (a) the structural disconnect between reported profit and operating cash flow, and (b) the IPO-year other-income spike that flattered headline earnings just before listing. The cleanest offsetting evidence is the unqualified statutory audit report, the unchanged 65.10% promoter holding (no insider exit), and the disclosed use of IPO proceeds with no reported deviation. The single data point that would most change the grade: the FY2026 audited financials confirming whether debtor days continue to expand past 144 or whether collections normalise.
Shenanigans Scorecard
2. Breeding Ground
The setup around the November 2024 IPO is the structural reason every downstream forensic flag warrants a higher confidence level. The company listed on NSE Emerge — the SME segment — which carries explicit exemptions from large parts of SEBI LODR, half-yearly (rather than quarterly) reporting, and the absence of mandatory Ind-AS adoption. None of these are wrongdoing; they simply lower the disclosure surface and make scrutiny harder.
The combination of an IPO-year statutory auditor change under "casual vacancy", a CFO/CEO/WTD sitting on the audit committee, IDs appointed three months before listing, and a 100% executive remuneration jump is exactly the breeding ground in which accounting flags should be taken at higher confidence. None of these on its own is unusual for an Indian SME — together they raise the bar of proof management owes the market.
3. Earnings Quality
The income statement looks healthy in the IPO year and broken in the year after — and the gap between the two is mostly other income, depreciation phasing, and a one-time post-listing collapse in operating leverage. Operating margin rose from 11.4% in FY23 to 16.76% in FY25, then collapsed to 4.89% in FY26. The expansion was real but partly cosmetic; the contraction is a warning that the IPO-year P&L was the high-water mark, not the new run rate.
Other-income spike inflated the IPO year
Other income in FY2025 was ₹1.17 crore — nine times the FY2024 level of ₹0.13 crore, and at par with the next three FY24/23/22 readings combined. It contributed 11.3% of operating profit and roughly 16% of pre-tax profit in the listing year. In FY26 it normalised to ₹0.44 crore. The annual report does not break the composition; for a contract manufacturer without investments, "other income" typically comprises interest on bank deposits, foreign exchange gains, scrap sales, and rate-difference recoveries — and the spike coincides precisely with IPO proceeds being parked in deposits before deployment.
Stripping the one-time portion of FY25 other income (using the FY24 baseline of ₹0.13 crore) trims roughly ₹1.04 crore from pre-tax profit, taking PBT from ₹6.48 crore to ₹5.44 crore — a 16% reduction in headline profitability. That alone would have made the post-tax growth narrative ("PAT up 36.32%") look closer to flat versus FY24.
Receivables and inventory grew far faster than revenue
The single largest forensic concern is the divergence between revenue growth and the growth of receivables, inventory and other current assets. Across FY24-FY25 the asset side expanded by 89% and 64% while revenue grew 36% and 15%. The IPO year added ₹19.7 crore to the "other assets" line — more than four times the year's reported net income.
The MDA itself flags the deterioration: debtors-turnover dropped from 5.26 times (FY24) to 3.48 times (FY25). Translated into days, that is debtor days expanding from 47 to 119, and 144 by FY26 per the ratios file. For a domestic contract manufacturer selling primarily to large Indian pharma, 90 to 120 days is plausible — but a tripling within three years, peaking around the listing, is the textbook receivables-quality flag from the shenanigans playbook.
4. Cash-Flow Quality
The most decision-relevant finding in this entire memo is the gap between cumulative net income and cumulative operating cash flow over the past five fiscal years. The company has reported ₹13.56 crore of net income; it has generated ₹3.90 crore of operating cash. Free cash flow has been negative every year except FY25, totalling ₹-32.35 crore. This is the inverse of the classic cash-flow shenanigan: rather than CFO being boosted to flatter the picture, CFO is being held down by working-capital expansion that the income statement does not show. Either the working-capital build is a structural feature of scaling a contract manufacturer with concentrated big-pharma customers, or revenue is being recognised in periods where the underlying cash never arrives.
Five years of cumulative cash conversion at 29% is a structural earnings-quality red flag. Three years cumulative at 17% — and the most recent two-year window flipping to negative — says the gap is widening, not closing. For a contract manufacturer that owns its plants and has no acquisitions, no securitisation, and no supplier-finance, the only place for "missing" cash to live is in the receivables and inventory line. Both lines are blowing out.
The decomposition is straightforward: the ₹9.66 crore gap between cumulative net income and cumulative CFO over five years matches almost exactly the ₹36.7 crore growth in receivables/inventory/other current assets net of payable expansion. There is no evidence of factoring, securitisation, supplier-finance or boomerang transactions in the cash-flow statement; debt was paid down with IPO proceeds (₹30.78 cr → ₹12.46 cr) and re-built modestly in FY26 (₹15.17 cr). So the structural cash-flow weakness reflects the working-capital story, not financing engineering.
5. Metric Hygiene
The IPO-year annual report leans heavily on three metrics: revenue from operations (₹61.95 cr, +15.3% YoY), PAT (₹4.95 cr, +36.3% YoY) and ROCE (11.88%, up from 11.22%). Each is correctly reported in absolute terms but each becomes less impressive once normalised for the IPO event or for the trajectory it preceded.
The peer-relative test is straightforward. Across the FY26 reporting window, listed pharma CDMO peers reported operating margins of 12% (Akums), 15% (Innova Captab), 19% (Cohance) and 27% (JB Chemicals, Senores). Onyx's FY26 operating margin of 4.89% sits below every peer in the panel. The FY25 reading of 16.76% was in line with the lower end of the cohort; FY26 fell off it.
6. What to Underwrite Next
Five items would shift this forensic grade in either direction. Track them.
The forensic risk here is large enough to act as a position-sizing limiter, not a thesis-breaker. There is no evidence of restatement, no auditor qualification, no regulatory action, no admitted misconduct. What there is, is a five-year pattern of profits that did not become cash, a one-time other-income flatterer in the IPO year, a tripling of debtor days, and a governance scaffold that is thinner than the average mainboard pharma listing. None of that means management is misstating numbers — but it does mean a public-market investor underwriting this name should require either (a) a discount to peer multiples that reflects the cash-conversion gap, or (b) the next two reporting cycles to confirm collections normalise. Treat the accounting risk as a valuation haircut and a sizing constraint, not as a fraud allegation.
In one sentence: until ₹52 crore of "other current assets" turns into cash, the income statement should be read as indicative — not authoritative — of economic profit at Onyx Biotec.