Kellton Tech Solutions Ltd:Annual Report 2023-24 Analysis

Kellton Tech Solutions Ltd.: A Comprehensive Overview #

About the Company #

Year of Establishment and Founding History:

Kellton Tech was established in 2009.

Headquarters Location and Global Presence:

• Headquarters: Hyderabad, India.
• Global Presence: Kellton Tech has a presence in North America, Europe, Asia, and Africa, with offices and development centers strategically located to serve their global clientele.

Company Vision and Mission:

• While the exact mission and vision statements might evolve, Kellton Tech generally aims to be a global leader in digital transformation, helping businesses achieve their goals through innovative technology solutions. They focus on enabling clients to be future-ready through digital and technological advancements.

Key Milestones in Their Growth Journey:

• Rapid expansion through organic growth and strategic acquisitions.
• Establishment of global delivery centers.
• Forging partnerships with leading technology providers.
• Focus on emerging technologies like cloud, AI, and IoT.
• Expansion into new industry verticals.

Stock Exchange Listing Details and Market Capitalization:

• Listed on: National Stock Exchange of India (NSE) and Bombay Stock Exchange (BSE)
• Ticker Symbol: KELLTONTEC
• Market Capitalization: (Provide the latest market capitalization figure - this needs to be updated regularly based on market data).

Recent Financial Performance Highlights:

• (Provide the latest financial highlights, including revenue, profit, and growth rates. This section should be updated with the most recent quarterly or annual report.)

Management Team and Leadership Structure:

• (Detail the key members of the management team, including the CEO, CFO, and other senior executives. Provide a brief overview of their roles and responsibilities.)

Notable Awards or Recognitions:

• (List any notable awards or recognitions received by the company for their services, innovation, or workplace practices. Search online using sources like LinkedIn, company website, and press releases.)

Their Products #

Complete Product Portfolio with Categories:

Kellton Tech’s service offerings are broadly categorized into:

• Digital Transformation: Cloud Enablement, Data & Analytics, AI & ML, Automation
• Product Engineering: Custom Software Development, Product Design, and Management.
• Digital Commerce: E-commerce Solutions, Digital Marketing Services.
• Managed Services: Application Maintenance and Support, Infrastructure Management.
• SAP Solutions: SAP Implementation, Consulting, and Support.
• Salesforce Solutions: Salesforce Implementation, Customization, and Support.

Key Technological Innovations or Patents:

• Focus on incorporating emerging technologies like AI, Blockchain, and IoT into their solutions.

Quality Certifications and Standards:

• ISO 9001 certified.
• ISO 27001 certified.

Primary Customers #

Target Industries and Sectors:

• Retail
• Healthcare
• Financial Services
• Manufacturing
• Energy
• Government

Geographic Markets (Domestic vs. International):

• Focus on both domestic (India) and international markets, with a significant presence in North America and Europe.

Major Competitors #

Direct Competitors in India and Globally:

• Tata Consultancy Services (TCS)
• Infosys
• Wipro
• HCL Technologies
• Cognizant
• Accenture

Competitive Advantages and Disadvantages:

• Advantages: Agility, specialized expertise in emerging technologies, strong focus on customer service.
• Disadvantages: Smaller scale compared to larger competitors, potentially lower brand recognition in certain markets.

How They Differentiate From Competitors:

• Kellton Tech aims to differentiate itself through specialized expertise in emerging technologies, agility in adapting to client needs, and a strong focus on customer service.

Future Outlook #

Expansion Plans or Growth Strategy:

• Continued expansion into new geographic markets and industry verticals.
• Strategic acquisitions to enhance capabilities and market presence.
• Investment in research and development of emerging technologies.

Industry Trends Affecting Their Business:

• Growing demand for digital transformation services.
• Increased adoption of cloud computing and AI.
• Rising importance of cybersecurity and data privacy.

Long-Term Vision and Strategic Goals:

• To be a leading global provider of digital transformation solutions.
• To build a strong reputation for innovation and customer satisfaction.

Financial Analysis Report: Kellton Tech Solutions Limited (FY23-24) #

Comprehensive Performance Overview: Financial Metrics (Standalone) #

The company’s standalone financial performance indicates revenue growth alongside fluctuating profitability.

Source: Explanatory Statement for Item No 5, 6, 7 (Director Remuneration) & Directors’ Report. Note: FY21-22 EBITDA, PBT, PAT calculated based on “Total Revenue” from operations as per the 3-year table. Margins calculated.

Consolidated Financial Highlights (FY24 vs FY23) #

• Total Revenue from Operations: Increased to INR 9,82,89,43,631 in FY24 from INR 9,17,32,58,067 in FY23 (7.15% growth).
• Profit Before Tax (PBT) and Exceptional Items: Increased to INR 71,90,65,213 in FY24 from INR 69,79,71,868 in FY23 (3.02% growth).
• Profit After Tax (PAT): Increased to INR 64,01,09,602 in FY24 from INR (1,26,80,88,401) in FY23. The FY23 PAT was significantly impacted by a goodwill write-off of INR 184 crores.

Analysis #

Standalone revenue shows consistent growth over three years, with a notable acceleration in FY23. EBITDA has also grown, with a stronger increase in FY24, leading to an improved EBITDA margin. However, PBT and PAT saw a dip in FY23 before a modest recovery in FY24, indicating pressure on profitability despite revenue growth during FY23, which appears to have somewhat eased in FY24. Total assets have expanded steadily.

Consolidated performance shows revenue and pre-exceptional PBT growth. The significant turnaround in consolidated PAT in FY24 is primarily due to the absence of the large goodwill write-off that occurred in FY23.

Business Segment Performance (Consolidated, FY24 vs FY23) #

Source: Notes to Consolidated Financial Statements. Standalone revenue is 100% from Digital Transformation services.

Analysis #

Digital Transformation remains the dominant revenue contributor, accounting for over 82% of consolidated revenue and demonstrating healthy growth. Enterprise Solutions also shows comparable growth, maintaining its share. Consulting, while smaller, continues to grow. All segments contributed positively to the overall revenue increase.

Major Strategic Initiatives and Progress (FY24 Highlights) #

Kellton undertook several key initiatives during the year, focusing on securing large projects, expanding service offerings, and enhancing capabilities:

• Major Client Acquisition (LIC): Secured a multi-year, high-value project from Life Insurance Corporation of India (LIC) to transform its HRMS landscape for over 1,50,000 employees using PeopleStrong’s product.
• New Service Launch (Design Studio): Introduced Design Studio to provide elite UI/UX design services, leveraging global talent and advanced technologies.
• Industry Recognition (SAP S/4HANA): Received an award for innovative approach and strategic implementation at scale in SAP S/4HANA services.
• Government Project Win (Karnataka): Entrusted by the Karnataka Government to develop HRMS Version 2.0 for over 600,000 state government employees.
• Capability Enhancement (Kverse): Launched Kverse, a global customer experience and innovation lab in Gurgaon, showcasing capabilities in IoT, AR/VR, Metaverse, Blockchain, and Voice Bots.
• New Product Launch (Industrial IoT Software): Introduced Industrial IoT software for oil field operations, leveraging IoT, blockchain, mobility, edge computing, and machine learning for real-time data-driven decisions.
• Strategic Partnerships & Rebranding: Other initiatives included partnerships and rebranding efforts to reinforce commitment to advanced solutions.

Progress #

These initiatives indicate a focus on large-scale digital transformation projects, particularly in the HR tech space, expansion of high-value design services, and investment in emerging technologies to build future capabilities and client engagement platforms.

Detailed Analysis #

Financial Analysis: Kellton Tech Solutions Limited (FY 2023-24) #

1. Comparative Financial Position (Assets, Liabilities, and Equity) #

Standalone Financial Position (INR) #

Note: FY22 Total Assets sourced from “Explanatory Statement - Financial Performance”. Breakdown for FY22 Assets, Equity, and Liabilities is not available in the provided text for standalone figures.

Consolidated Financial Position (INR) #

Note: 3-year comparative data for Consolidated Balance Sheet items is not available in the provided text.

Analysis #

• Standalone: Total assets grew by 15.84% YoY in FY24, following a 7.98% growth in FY23. Equity increased by 8.22% in FY24. Total liabilities saw a significant increase of 31.81% in FY24, primarily driven by a 46.12% rise in current liabilities.
• Consolidated: Total assets increased by 10.71% YoY in FY24. Equity grew substantially by 18.86%, largely due to a significant increase in ‘Other Equity’ which includes retained earnings. Total liabilities decreased slightly by 2.89%, with non-current liabilities falling by 13.87% while current liabilities remained relatively stable.

2. Significant Changes in Major Line Items (>10% YoY) #

Standalone Performance #

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**Financial Analysis Report: Kellton Tech Solutions Limited (Based on FY24 Annual Report)**

Kellton Tech Solutions Limited Financial Analysis (FY 2023-24) #

Revenue and Profitability Metrics #

• Consolidated Performance (FY24 vs FY23):
  • Total Revenue from Operations: Increased by 7.15% to Rs. 9,82.89 crores from Rs. 9,17.33 crores.
  • Profit Before Tax (PBT) and Exceptional Items: Increased by 3.02% to Rs. 71.91 crores from Rs. 69.80 crores.
  • Profit After Tax (PAT): Stood at Rs. 64.01 crores, a significant turnaround.
  • Earnings Per Share (EPS) - Basic & Diluted: Rs. 6.60 (Basic) and Rs. 6.58 (Diluted) for FY24, compared to (Rs. 13.14) (Basic) and (Rs. 13.11) (Diluted) for FY23.
• Standalone Performance (FY24 vs FY23):
  • Total Revenue from Operations: Increased by 8.11% to Rs. 1,84.72 crores from Rs. 1,70.85 crores.
  • Profit Before Tax (PBT) and Exceptional Items: Increased by 2.81% to Rs. 13.68 crores from Rs. 13.31 crores.
  • Profit After Tax (PAT): Increased by 4.90% to Rs. 9.95 crores from Rs. 9.49 crores.
  • Earnings Per Share (EPS) - Basic & Diluted: Rs. 1.02 (Basic & Diluted) for FY24, compared to Rs. 0.98 (Basic & Diluted) for FY23.
• Analysis: The company demonstrated revenue growth at both consolidated and standalone levels. Consolidated PAT showed a strong recovery. Standalone PAT growth was modest. The growth in PBT across both segments was relatively subdued compared to revenue growth.

Market Share and Competitive Position #

• Kellton Tech positions itself as a “global engineering and technology solutions company” and a “leading IT services company.”
• Strategic project wins indicate a strong competitive standing in specialized domains like HR tech and government digital transformation projects.
• The launch of “Design Studio” and “Kverse” aims to enhance its competitive edge in customer experience and digital innovation.
• Accolades underscore its capabilities in specific technology areas.

Key Products/Services Performance #

• Segmental Revenue (Consolidated FY24):
  • Digital Transformation: Rs. 8,06.31 crores (approx. 82% of total revenue).
  • Enterprise Solutions: Rs. 1,38.41 crores (approx. 14%).
  • Consulting: Rs. 38.18 crores (approx. 4%).
  • Digital Transformation remains the dominant revenue and profit contributor.
• Key Service Highlights:
  • HR Tech: Significant traction with large-scale projects.
  • Design Services (UI/UX): New offering “Design Studio” launched.
  • SAP S/4HANA Services: Recognized expertise.
  • Industrial IoT Software: A strategic digital asset introduced for oil field operations.
  • Kverse (CX & Innovation Lab): Launched to showcase digital innovation capabilities.
  • The company is actively rebranding to reflect an evolved service portfolio, including AI and IoT.

Geographic Distribution and Market Penetration #

• Consolidated Revenue by Geography (FY24):
  • United States of America: Rs. 8,30.56 crores (approx. 84.5%).
  • APAC (Including India): Rs. 1,12.97 crores (approx. 11.5%).
  • Europe: Rs. 37.47 crores (approx. 3.8%).
  • The US market remains overwhelmingly dominant.
• Standalone Revenue by Geography (FY24):
  • APAC (Including India): Rs. 1,05.76 crores (approx. 57.2%).
  • Europe: Rs. 12.56 crores (approx. 6.8%).
  • United States of America: Rs. 64.50 crores (approx. 34.9%).
  • Standalone operations show a more balanced geographical spread with APAC (including India) being the largest contributor.
• Market Penetration Efforts:
  • Specific leadership focus on expanding business in the US and APAC region.
  • Global offices are maintained to support international operations.

Segment-wise Capex and ROIC #

• Capital Expenditure (Standalone FY24):
  • Additions to Property, Plant and Equipment: Rs. 6.60 crores (FY23: Rs. 2.35 crores).
  • Additions to Capital Work in Progress: Rs. 18.15 crores (FY23: Nil).
  • Additions to Right to use Assets: Rs. 8.78 crores (FY23: Rs. 13.01 crores).
• Return on Capital Employed (ROCE) (FY24 vs FY23):
  • Consolidated: 17.83% vs 18.68% (slight decrease).
  • Standalone: 11.56% vs 10.91% (slight increase).

Operational Efficiency Metrics #

• Key Ratios (Consolidated FY24 vs FY23):
  • Current Ratio: 3.36 vs 3.15 (Improved liquidity).
  • Debt-Equity Ratio: 0.29 vs 0.31 (Slight improvement in leverage).
  • Debt-Service Coverage Ratio: 4.63 vs 6.69 (Decrease).
  • Return on Equity Ratio: 15.68% vs -29.78% (Significant improvement).
  • Trade Receivables Turnover Ratio: 3.62 vs 3.70 (Slight decrease).
  • Net Profit Ratio: 6.51% vs -13.82% (Significant improvement).
• Key Ratios (Standalone FY24 vs FY23):
  • Current Ratio: 1.64 vs 2.05 (Decreased liquidity).
  • Debt-Equity Ratio: 0.30 vs 0.23 (Increased leverage).
  • Debt-Service Coverage Ratio: 2.67 vs 3.32 (Decrease).
  • Return on Equity Ratio: 6.23% vs 6.48% (Slight decrease).
  • Trade Receivables Turnover Ratio: 3.27 vs 3.36 (Slight decrease).
  • Net Profit Ratio: 5.39% vs 5.55% (Slight decrease).
• Management Focus: Minimizing expenses and streamlining operational processes.

Growth Initiatives and Challenges #

• Growth Initiatives:
  • Strategic Wins & Large Projects.
  • Service Portfolio Expansion & Innovation.
  • Talent Development.
  • Geographic Expansion.
  • Enhanced Financial Flexibility.
  • Rebranding.
• Key Challenges & Risk Factors:
  • Margin Pressure.
  • Director Remuneration vs. Standalone Profitability.
  • Economic Headwinds.
  • Talent Management.
  • Cybersecurity and Data Privacy.
  • Dependence on Key Geographies.
  • Integration of New Technologies.
  • Debt Servicing.

Overall Assessment #

Kellton Tech Solutions Limited shows positive revenue momentum and a significant PAT recovery at the consolidated level in FY24. Strategic project wins and new service initiatives indicate a forward-looking approach. However, margin pressures, efficient capital deployment for new initiatives, and navigating macroeconomic uncertainties, alongside effective talent management, will be key to sustaining profitable growth.

Risk Framework #

Strategic Risks #

Market Competition and Economic Downturn #

• Analysis:
  • Severity: High. The IT services industry is highly competitive. Economic downturns globally or in key markets (USA, APAC, Europe) can reduce client IT spending.
  • Likelihood: Medium. Economic cycles are inherent; competitive pressures are constant.
  • Trend: Increasing. Global macroeconomic uncertainties and rapid technological shifts intensify competition.
• Mitigation Strategies: Diversification of service offerings (Digital Transformation, Enterprise Solutions, Consulting), geographic presence (USA, APAC, Europe), focus on high-value projects (LIC, Karnataka Govt), development of new offerings (Design Studio, Kverse, Industrial IOT Software), and efforts to increase customer base and cross-selling.
• Control Effectiveness: Moderate. Diversification and new offerings show proactive measures. The impact of economic downturns can be partially mitigated but not eliminated.
• Potential Financial Impact: Reduced revenue growth, pressure on margins, project delays or cancellations.
• Quantitative Metrics: Revenue growth (Consolidated: +7.15% YoY to Rs. 982.89 Cr; Standalone: +8.12% YoY to Rs. 184.72 Cr). Dependency on key geographies (USA: ~84.5% of Consolidated Revenue).
• YoY Changes: Slight moderation in consolidated revenue growth compared to potential if economic conditions were stronger.

Talent Acquisition, Retention, and Succession #

• Analysis:
  • Severity: High. The IT industry faces a persistent challenge in attracting and retaining skilled talent. Dependence on key managerial personnel (KMPs) also poses a risk.
  • Likelihood: High.
  • Trend: Increasing. Competition for specialized skills (AI, digital, HR tech) is intensifying.
• Mitigation Strategies: Employee Stock Option Scheme (ESOP 2013, proposed amendments), competitive remuneration for KMPs (resolutions for Niranjan Chintam, Krishna Chintam, Karanjit Singh), continuous upskilling programs, fostering a positive work culture, diversity initiatives.
• Control Effectiveness: Moderate. ESOPs and remuneration policies are standard tools. The effectiveness of cultural and upskilling initiatives is qualitative.
• Potential Financial Impact: Increased employee costs, project delays due to skill gaps, loss of innovation, impact on service delivery if key personnel depart.
• Quantitative Metrics: Employee benefits expense (Standalone: Rs. 128.86 Cr, +5.33% YoY; Consolidated: Rs. 486.78 Cr, +5.01% YoY). Proposed remuneration for KMPs: N.Chintam & K.Chintam up to Rs. 1.2 Cr p.a. each, K.Singh up to Rs. 0.75 Cr p.a. Employee turnover for permanent employees (BRSR FY24): 17.4

Financial Analysis: Kellton Tech Solutions Limited (FY23-24) #

Overall Financial Performance (FY24) #

The company experienced growth in its financial performance for the year ended March 31, 2024.

Consolidated Operations: #

• Revenue increased to Rs. 9,82,89,43,631 from Rs. 9,17,32,58,067 in the previous year.
• Profit Before Tax (PBT) grew to Rs. 71,90,65,213 compared to Rs. 69,79,71,868.
• Profit After Tax (PAT) stood at Rs. 64,01,09,602, a turnaround from a loss of Rs. (1,26,80,88,401) in FY23. (Prior year loss attributed to goodwill write-off of Rs. 184 crores).

Standalone Operations: #

• Revenue increased to Rs. 1,84,71,53,469 from Rs. 1,70,85,40,306.
• PBT increased to Rs. 13,67,94,073 from Rs. 13,30,59,072.
• PAT improved to Rs. 9,95,44,172 from Rs. 9,48,93,316.

Note: The Board has recommended retaining entire profits for the financial year ended March 31, 2024, for future growth, and thus no dividend has been declared.

Management Guidance and Assumptions #

• Strategic initiatives and advancements in technological capabilities are expected to boost profit margins and strengthen market position.
• Focus on minimizing expenses and streamlining operational processes to improve financial performance.
• Proposed remuneration increases for key managerial personnel are justified by their role in driving global success, particularly in revenue and profit enhancement.

Market Growth Outlook #

Explicit numerical market growth forecasts are not provided. However, the following strategic initiatives indicate an optimistic outlook:

• Securing multi-year, high-value projects.
• Launching new innovation labs (Kverse) and design studios.
• Introducing new software products (Industrial IoT).

Planned Strategic Initiatives #

The company pursued strategic initiatives during the year to enhance its service portfolio and market reach:

1. Major Project Wins: Secured projects from Life Insurance Corporation of India (LIC) and the Karnataka Government focusing on HRMS transformation.
2. New Service Offerings:
   • Launched “Design Studio” for UI/UX design services.
   • Introduced “Industrial IOT Software” for oil field operations.
3. Innovation and Customer Experience: Launched “Kverse,” a customer experience and innovation lab in Gurgaon.
4. Talent Management: Continued investment in employee upskilling and development programs. Proposed amendment to the Kellton Tech Solutions Limited Employees Stock Option Scheme, 2013.

Capital Expenditure Plans #

• Proposed increase in borrowing limit from Rs. 250 Crores to Rs. 500 Crores to meet working capital and long-term funding requirements.
• Establishment of the Kverse lab and development of new software platforms involve capital outlay and R&D expenditure.
• Capital work-in-progress stood at Rs. 18,15,01,808 (Standalone & Consolidated) as of March 31, 2024.

Audit and Compliance Analysis #

Auditor’s Opinion and Qualifications #

The Independent Auditors, Anant Rao & Malik, issued an unqualified opinion on both the Standalone and Consolidated Financial Statements of Kellton Tech Solutions Limited for the year ended March 31, 2024. They stated that the financial statements give a true and fair view in conformity with Indian Accounting Standards (Ind AS) and the Companies Act, 2013.

Standalone Financial Statements #

No qualifications were noted. Key Audit Matters (KAMs) highlighted were related to revenue recognition for fixed-price contracts using the percentage-of-completion method, which involves significant estimation.

Consolidated Financial Statements #

No qualifications were noted. KAMs were similar, focusing on revenue recognition for fixed-price contracts and impairment testing of goodwill. The “Other Matters” section of the consolidated audit report states that the financial statements of four subsidiaries were not audited by them (three unaudited, one audited by other auditors) and their opinion, in so far as it relates to these subsidiaries, is based solely on such financial statements/information furnished by management. This did not, however, lead to a modification of their overall opinion on the consolidated financial statements.

Key Accounting Policies #

The company prepares its financial statements in accordance with Ind AS under the historical cost convention, except for certain financial instruments and share-based payments measured at fair value.

• Revenue Recognition: Revenue from time and material contracts is recognized as services are rendered. For fixed-price contracts, revenue is recognized using the percentage-of-completion method, based on efforts or costs expended relative to total estimated efforts or costs. Revenue from maintenance contracts is recognized pro-rata over the contract period.
• Intangible Assets: Goodwill arising on business combinations is tested for impairment annually or more frequently if indicators exist. Other intangible assets (e.g., software licenses) are carried at cost less accumulated amortization.
• Leases (Ind AS 116): Right-of-Use (ROU) assets and corresponding lease liabilities are recognized for leases, except for short-term and low-value leases. ROU assets are depreciated over the shorter of the lease term or useful life.
• Employee Benefits: Defined contribution plans (Provident Fund) are expensed as incurred. Defined benefit plans (Gratuity) are accounted for based on actuarial valuations using the projected unit credit method, with remeasurements recognized in Other Comprehensive Income (OCI).
• Share-Based Payments (ESOPs): Equity-settled ESOPs are fair valued at the grant date and expensed over the vesting period.
• Foreign Currency Transactions: Transactions are recorded at prevailing rates. Monetary assets/liabilities are restated at closing rates, with exchange differences recognized in profit or loss. For foreign operations, translation differences are recognized in OCI.

No significant changes in accounting policies were explicitly reported for the financial year ended March 31, 2024; policies were stated to be consistently applied.

Internal Control Effectiveness #

The auditors issued an unmodified opinion on the adequacy and operating effectiveness of the company’s internal financial controls over financial reporting as of March 31, 2024, for both Standalone operations and for the Company and its Indian subsidiary companies on a consolidated basis. This was based on the criteria established by the Company considering the essential components of internal control stated in the Guidance Note issued by the ICAI.

Regulatory Compliance Status #

• Secretarial Audit Report Observations:
  • Discrepancy in the total number of shares between MCA records and BSE shareholding patterns as of March 31, 2024, due to listing approvals for ESOP-allotted shares being received in April 2024.
  • Form IEPF-2 filing was pending approval from MCA (rejected due to “Failed Investor Data Validation”).
  • Certain MCA forms were submitted with late fees, attributed by management to migration issues from MCA V2 to V3 portal.
  • A penalty of Rs. 1,180 was imposed by NSE and BSE for a one-day delay in complying with Regulation 13(3) of SEBI Listing Regulations concerning investor grievance redressal for Q3 FY2023-24.
  • A prior year penalty from BSE (FY2022-23) of Rs. 2,12,400 for non-compliance with Regulation 19 was waived by the exchange upon company representation.
• The Directors’ Report affirms compliance with applicable Secretarial Standards (SS-1 and SS-2).
• The Corporate Governance report states compliance with SEBI (LODR) Regulations.
• No instances of fraud by or on the company by its officers/employees were reported by the statutory auditors.

Legal Proceedings and Their Potential Impact #

• The Auditors’ Report (Standalone & Consolidated) states that the company/group has disclosed the impact of pending litigations on its financial position.
• The Notes to both Standalone (Note 40) and Consolidated (Note 42) Financial Statements indicate Contingent Liabilities as Nil as at March 31, 2024.
• The Directors’ Report states that there are no significant and material orders passed by regulators or courts impacting the going concern status or future operations.
• Standalone Note 41 mentions an overdue receivable from Enterprise Consulting Partner, Inc., which management deems recoverable due to an offsetting payable within a subsidiary.