Cash and Cash equivalents = 21 crore (31-mar-2015)
Current debt equity = 0.2x
Estimated Operating cash generation in Q1FY16
Sales – 200 crore
EBITDA margin – 10%
EBITDA – 20 crore
Change in Working capital (20% of sales) – 20% of change in sales
= 8 crores = (20%*(200 – 160 crore))
Tax – 5 crores
OCF = 6-8crore
Estimated Cash at the end of Q1FY16 – 25 – 28 crores (assuming no additional stores)
So end of year operating cash could be in the range of 40 – 50 crores (Given Q3 generates significant cash flow)
That should be sufficient to open 20 odd stores..
Given current debt equity is low at 0.15 – 0.2x, the management is comfortable taking additional debt, with maximum debt equity ratio of 0.75x (so given their net worth is 200 crore, they can leverage upto 150 odd crores)..this certainly is not the preferred route..
And I think for a fast growing company, it is okay for the business to raise additional equity which should happen sometime in FY16 (potential issue here could be FII limit cap of 24%, and current FII holding of ~23%). Dilution at what valuation is to be tracked.
I agree that there is a cash requirement for the business to maintain its rapid growth and open 20 - 25 stores per annum, but there are internal accruals + debt + equity raising option available
to the management. And for a high growth business, raising equity is a good option. Look at companies like Astral, Mayur, La Opala, Can Fin Homes, Shilpa Medicare who have raised significant equity in the last year for growth