Why I Exited Kellton Tech: Lessons from a 6-Year Investment Story

Why I Exited Kellton Tech: Lessons from a 6-Year Investment Story

I started buying Kellton Tech Solutions aggressively in September 2018. I had been tracking the company for some time before that, and I liked what I saw. At the time, I believed the company had the potential to become a much larger IT services business.

Kellton became one of the larger positions in my portfolio. At one point, it was alongside Tech Mahindra as one of the companies I was most comfortable owning for the long term.

My thesis was not complicated. The company had about ₹800 crore of revenue, management was talking about reaching ₹2,000 crore, the IT industry was growing, and Kellton was aggressively expanding through acquisitions. The valuation also looked attractive.

I was wrong about one important thing: I underestimated the gap between management’s ambition and its ability to execute.

I finally sold my entire holding on January 8, 2025, at an average price of ₹166.95 per share. After the 1:5 stock split in July 2025, that is equivalent to ₹33.39 per share. By the time I sold, Kellton represented roughly 56% of my portfolio.

This article records why I bought Kellton, what changed during the six-plus years I owned it, and why I finally decided that I had enough.

Why I Bought Kellton Tech

When I started buying Kellton in 2018, the stock looked cheap to me relative to what the business could become.

Revenue was around ₹800 crore. Management had been talking about taking the business to ₹2,000 crore. The company was positioning itself around digital transformation and was acquiring businesses to expand its capabilities and customer base.

I was not the only investor who saw something interesting in the company. Basant Maheshwari had also spoken positively about Kellton’s potential as a multibagger. That added to the interest, although my decision to invest was based on my own assessment.

Management’s ambition was particularly attractive. In investor calls, management spoke confidently about the scale it expected to achieve.

CNBC-TV18 had also reported the company’s ₹2,000 crore revenue ambition.

The company’s investor-call transcript also records management’s growth expectations:

At the time, the stock traded around ₹30 on the old ₹5 face value, equivalent to about ₹6 after the later 1:5 split. I thought the market was giving me an opportunity to buy a growing IT business at a valuation that did not reflect its future potential.

That was the thesis.

Looking back, the mistake was not in expecting the company to grow. The mistake was giving too much weight to what management said it could do and not enough weight to what it actually delivered over time.

The ₹2,000 Crore Promise and What Actually Happened

Kellton had about ₹783 crore of consolidated revenue in FY2018. The ₹2,000 crore target therefore required substantial growth.

That growth did not happen.

Kellton Tech’s consolidated revenue was approximately:

• FY2018: ₹783 crore
• FY2019: ₹814 crore
• FY2020: ₹771 crore
• FY2021: ₹776 crore
• FY2022: ₹843 crore
• FY2023: ₹917 crore
• FY2024: ₹983 crore
• FY2025: ₹1,098 crore

From ₹783 crore in FY2018 to ₹983 crore in FY2024, revenue grew at only about 3.9% a year. Even by FY2025, revenue had reached only ₹1,098 crore. The company had made progress, but it was nowhere close to the scale I had originally expected.

I kept waiting. I kept watching the quarterly numbers. I gave management time because businesses do not always grow in a straight line.

But after several years, the numbers were telling me something I did not want to ignore.

The original growth story was not playing out.

The Numbers Became More Important Than the Story

When I bought Kellton, I was willing to accept a certain amount of risk because I believed the business could grow rapidly.

As the years passed, the problem was that the growth did not justify the risks I was taking.

The return ratios also deteriorated.

ROE was about 26.3% in FY2018 and 23.4% in FY2019. By FY2025, it was around 14.9%.

ROCE was also much lower than it had been when I first bought the company. Depending on the source and calculation methodology, FY2018 ROCE was around 32%, compared with about 18.7% in FY2025.

That matters to me. I want a business to earn good returns on the capital it employs. Revenue growth by itself does not impress me if the return on capital keeps falling.

The company had also spoken about achieving a 20% EBITDA margin. It did not sustain that target. For example, the FY2024 consolidated PBDIT margin was around 15.4%, well below the 20% target.

The problem was not that Kellton became a loss-making company. It didn’t. The problem was that the quality of the economics was not developing in the direction I had expected when I invested.

Debt, Acquisitions, and the Cost of Expansion

Kellton relied heavily on acquisitions to build the business.

Acquisitions can work very well when the buyer has the capital, discipline, and ability to integrate the acquired businesses. But they can also destroy shareholder value when a company keeps buying businesses without generating enough cash from the existing business.

Kellton acquired several businesses during its expansion phase. One example was PlanetPro, which was acquired to strengthen the company’s digital transformation capabilities.

The acquisitions increased the scale of the company, but they also consumed capital and increased financial complexity.

Consolidated debt was about ₹147 crore at March 2024, excluding roughly ₹9 crore of lease liabilities. Debt had been higher in earlier years as well.

The problem was not simply the amount of debt. It was what the debt was being used for and what the company earned on the capital deployed.

When acquisitions do not produce the expected returns, the goodwill created by those acquisitions eventually has to be questioned.

That happened at Kellton.

The ₹184 Crore Goodwill Write-Off

In FY2024, Kellton wrote off about ₹184 crore of goodwill as a one-time exceptional item.

For me, this was an important event. When a company pays for acquisitions and later has to write down a large amount of goodwill, I have to ask whether the original acquisition prices were justified.

I do not need to call every acquisition a mistake. I simply look at what the acquisitions produced for shareholders.

The goodwill write-off made me much less comfortable with the acquisition-led growth strategy.

There is a simple rule I follow: if a company needs more and more capital to buy growth but the returns on that capital are falling, I stop giving the growth story the benefit of the doubt.

A Lower Debt-to-Equity Ratio Does Not Automatically Mean Lower Debt

One thing that bothered me was the way leverage could look better when the equity base increased.

A lower debt-to-equity ratio is useful information, but it does not mean the company has actually repaid the debt. If equity increases while debt stays high, the ratio can improve even though the absolute debt burden has not fallen by the same amount.

That distinction matters to me.

I do not consider financial engineering to be the same thing as operational improvement. I want to see cash generation, debt reduction, better margins, and higher returns on capital.

The 1:1 bonus issue itself happened in March 2018, before I bought my shares. I therefore do not want to rewrite history and pretend that it was some later action taken during my ownership. My concern was with the broader pattern of capital raising, dilution, and leverage during the years I held the company.

Dilution Became a Bigger Problem for Me

When I buy a company, I am buying a piece of the business. If the number of shares keeps increasing, my percentage ownership of that business falls unless I keep putting in more money.

That is why I watch the share count and promoter holding carefully.

Kellton had issued equity and warrants at various points in its history. There was also a history of convertible instruments.

Over the years, the shareholder base also expanded substantially. I do not think the precise shareholder count is as important as the larger point: the equity base and public participation increased considerably while promoter ownership declined.

Promoter Holding Fell Sharply

When I started buying Kellton, promoter holding was about 60.56%.

By June 2024, promoter holding was about 51.68%. By September 2024, it was down to about 40.82%.

Promoters also made disclosed open-market sales in July 2024. The reported transactions included sales at around ₹159 per share.

For example, Matnic Finvest LLP sold 900,000 shares at ₹159 per share. Kellton Wealth Management LLP sold 900,000 shares at ₹155.40, and Mohana Reddy Chintam sold 328,552 shares at ₹159.40.

I do not want to pretend that those July transactions alone explain the entire fall in promoter ownership from 51.67% to 40.82%. They do not. But the direction of promoter ownership was clear, and that mattered to me.

When promoters own a large part of a business, their interests are naturally tied to the interests of minority shareholders. When that ownership keeps falling, I start asking whether that alignment is becoming weaker.

That is not a judgment about why an individual promoter sold. Promoters can have genuine personal financial requirements. But as a shareholder, I still have to decide whether I am comfortable with the changing alignment.

The January 2025 Warrant Issue Was the Final Trigger

The sequence of events around January 2025 was important in my decision to sell.

On January 3, 2025, Kellton informed the stock exchanges about a proposal to raise capital through equity shares and/or convertible securities, including warrants.

On January 8, 2025, the board approved the issue of up to 55 lakh convertible warrants on a preferential basis.

The later disclosures identified Matnic Finvest LLP as subscribing to 45 lakh of those warrants. The FCCB conversion that subsequently resulted in 2,05,19,850 additional shares was a later event in 2025, not something that had already happened on January 8.

That distinction is important because I sold my shares on January 8, 2025, on the day of the board meeting.

I had already become uncomfortable with the combination of promoter selling, falling promoter ownership, capital raising, and preferential securities.

The sequence also made me uncomfortable from a minority-shareholder perspective. I started wondering whether the structure was being used to achieve an outcome that might be legally permissible but did not sit well with me as a shareholder.

I am not making a legal finding here. I am explaining why I became uncomfortable enough to sell.

For reference, you may read the relevant SEBI insider-trading regulations.

The later disclosure regarding the 45 lakh warrants is also worth reading.

The FCCB Conversion Came Later

I want to keep the chronology clear because this article is also my record of why I sold.

The company subsequently allotted 2,05,19,850 equity shares pursuant to conversion of FCCBs in July 2025. That happened after I had already exited.

I therefore do not use the later share issuance as a reason that I sold on January 8. What I did see on January 8 was the proposed preferential warrant issue, against the background of everything that had already happened.

That was enough for me.

Promoter Ownership Was Not the Only Governance Concern

The falling promoter holding became more important because it was not happening in isolation.

I was already questioning the company’s execution record, the acquisition strategy, the returns on capital, the debt, and the repeated need to raise capital.

When all these things appear together, I do not look at each one separately and say, “This is manageable.” I look at the business as a whole.

My question became simple: Do I still want to own this business for another five or ten years?

By January 2025, my answer was no.

The Dividend Story Also Disappointed Me

Management had spoken about regular dividends. In practice, Kellton paid a dividend only once during my holding period, in 2021, and did not establish a regular dividend thereafter.

I am not saying every company has to pay a dividend. I would much rather see a company retain cash and earn a high return on it.

But if management tells shareholders that regular dividends are part of the plan and that does not happen, I take note.

The cash is either being retained for a reason or it is being consumed elsewhere. I want to know where it is going and what return the company is earning on it.

COVID Did Not Create the Problems

COVID-19 obviously created a difficult operating environment for many businesses. Kellton was no exception.

But I do not blame COVID for the problems that eventually changed my thesis. Several of the issues were visible before the pandemic and remained visible afterward.

For example, the company approved a proposal for 80 lakh convertible warrants in September 2020. The subsequent annual report noted that the warrants did not materialize because the company did not complete the required pre-listing application and allotment process within the prescribed period.

After the pandemic, the company continued to talk about digital transformation and new opportunities. I wanted to see those opportunities reflected in revenue growth, margins, cash generation, and return ratios.

That is where I remained unconvinced.

The Company Did Try to Change Course

I do not want to give the impression that Kellton’s management ignored every problem.

There were attempts to move toward organic growth, reduce dependence on acquisitions, and improve capital discipline. The company also wrote off goodwill and talked about cleaning up the balance sheet.

The problem for me was that the actions did not produce a turnaround strong enough to restore my confidence.

Management had talked about a 20% EBITDA margin. That target was not achieved consistently. Management had talked about regular dividends. That did not become a regular feature. Debt remained meaningful. Promoter ownership fell. Capital raising continued.

At some point, I have to stop waiting for the turnaround and judge the company that actually exists.

The Earlier Numbers Still Matter

One reason I had stayed with Kellton for so long was that the company had demonstrated periods of strong growth earlier in its history.

Kellton had been recognized by Deloitte Technology Fast50 India. The company reported 118% revenue growth over three years in the relevant ranking.

That history helped support my original thesis. But past growth cannot carry an investment forever. At some point, I have to look at what happened after I bought.

That is where the story became much less convincing.

The Shareholder Base Changed Too

The shareholder base changed considerably during the years I held Kellton. In September 2018, there were 14,947 individual shareholders in the category of shareholders holding up to ₹2 lakhs of share capital. By December 2024, that number had risen to 183,528.

Their share of the company had also increased from 15.69% to 46.09%. At the same time, promoter ownership had fallen sharply.

I had no problem with more retail shareholders owning the stock. What concerned me was the combination of increasing public ownership, falling promoter ownership, dilution, and the company’s continuing need for capital.

What I Thought Kellton Was Worth

I did not decide to sell simply because the stock price had gone up.

I kept estimating what I thought the business was worth.

When I bought the stock around ₹30 on the old face value, I believed the business was significantly undervalued if management could execute its growth plans.

By January 2025, the stock was trading above ₹170 on the old ₹5 face-value basis, or above ₹34 on the post-split basis.

My estimate of fair value had changed. Earlier, I had considered a value around ₹225 possible. By the time I sold, I was comfortable putting fair value at around ₹170.

That change in fair value was not because the market had become irrational. It was because my assessment of the business had changed.

The revenue growth was much weaker than I had expected. Profitability was not where I wanted it to be. Return ratios had fallen. The company had gone through a large goodwill write-off. Debt and capital raising remained concerns. Promoter ownership had declined.

At around ₹170, I did not see enough margin of safety.

So I sold.

The Valuation at Exit

At the time of my exit, the stock was trading at roughly 13–15 times earnings, while price-to-book was around 2 times.

Those multiples were not outrageous in isolation. That was not the point.

The question was whether I wanted to pay those multiples for a business whose growth had disappointed me, whose return ratios had deteriorated, and whose capital-allocation and governance issues had become increasingly important to my thesis.

I did not.

Why I Finally Sold

By January 2025, I had several reasons to sell, and none of them depended on one bad quarter.

• The original ₹2,000 crore revenue ambition had not been achieved.
• Revenue growth over the years had been much slower than I expected.
• Return on equity and return on capital had fallen substantially from earlier levels.
• The 20% EBITDA-margin ambition had not become a sustainable reality.
• The acquisition strategy had consumed capital and eventually resulted in a large goodwill write-off.
• Debt remained a concern relative to the quality of returns being generated.
• Promoter ownership had fallen substantially from the level when I invested.
• Promoter open-market selling made me less comfortable with the alignment.
• Further preferential capital raising was being proposed.
• The valuation no longer gave me the margin of safety I wanted.

Any one of these might not have been enough to make me sell.

Together, they changed the investment thesis.

I had bought Kellton because I expected a rapidly growing, increasingly profitable IT company. By the time I sold, I was looking at a much slower-growing company with lower return ratios, a more complicated capital structure, and a management record that I no longer trusted enough to underwrite another long holding period.

What I Learned From Kellton

1. Management promises are not business results

I learned this one the hard way.

Management can give ambitious targets. Analysts can repeat them. Television channels can report them. Investors can get excited about them.

None of that creates revenue.

Only execution does.

2. Acquisitions are not growth by themselves

Buying another company increases revenue if the acquisition is consolidated. That does not automatically mean shareholder value has increased.

I want to know what the company paid, what it earned from the acquisition, what return it generated, and how much debt or equity it needed to fund the transaction.

The ₹184 crore goodwill write-off made this issue impossible for me to ignore.

3. A lower ratio is not always an improvement in the underlying business

Debt-to-equity can improve because equity increases. That does not necessarily mean debt has been repaid or that the underlying business has become less risky.

I now pay much more attention to absolute debt, cash generation, and return on capital rather than relying on one ratio.

4. Watch promoter ownership

I do not automatically treat promoter selling as a reason to sell.

People have personal financial requirements. Promoters are allowed to sell shares.

But repeated selling, falling promoter ownership, capital raising, and other governance concerns can change the risk-reward equation.

I have to look at the whole picture.

5. I have to be willing to admit that my thesis changed

This is probably the most important lesson.

I held Kellton for more than six years. I had a large amount of money in it. I had spent years studying the company.

None of that gave me a reason to keep holding it after the thesis changed.

The fact that I had been right about the stock at one stage did not mean I would be right about it forever.

I had to look at the business as it stood in January 2025, not the business I had hoped it would become in 2018.

My Final View When I Sold

I did not sell Kellton because I suddenly thought it was a terrible company.

I sold because it was no longer the company I thought I had bought.

The growth was slower than expected. The return ratios were lower. The acquisition strategy had not produced the results I wanted to see. Goodwill had to be written off. Promoter ownership had fallen. Capital raising and dilution remained concerns. And the market price had reached a level where I no longer saw enough margin of safety.

I had spent enough time waiting for the original thesis to work.

On January 8, 2025, I sold the entire position at an average price of ₹166.95.

I made a good return on the investment. But the return is not the only thing I take away from Kellton.

The bigger lesson is that a long-term investor cannot confuse patience with stubbornness.

I am happy to hold a business for many years when the business continues to justify the ownership. But when the numbers, capital allocation, management credibility, and valuation stop supporting the original thesis, I have to act.

That is what I did with Kellton.