Any idea why the WC intensity reduced in the interim. Could you share the chart with dso, dpo, dio separately. If possible please share the excel also. Could they be funding the WC increase with internal accruals?
PS: Seems like the reduction in WC in 12-13 was due to reduction in inventory, I am guessing it was due to a fall in cotton prices. But it was an almost 50% fall in total value. It was the same year when OPM fell from 30% to 20%. In 2011 OPM spike from 20% to 30%. I am guessing this is due to FIFO inventory accounting and delay in passing on higher/lower RM prices to the customers.
I haven’t studied all the past ARs but does anyone know how they maintain such low DSO. Someone in a blog said they were using receivables discounting. Has anyone found any proof to substantiate this theory? Normally I avoid such companies with wild movements in WC days. But I guess it might be the nature of this industry.
If you look at the B/S from Mar-08, there has been 400 cr odd addition in equity reserves, 260 odd cr reduction in borrowings. 175 cr has gone into funding WC.
The PAT and CFO generation in the past years (10-19) of about 440 cr & 576 cr respectively, which has funded this expansion in B/S. Unfortunately, none of this has lead to a meaningful increase in excess capital for the shareholders in the form of investments or cash on the B/S. Company has paid dividends of 61.5 cr since 2008.
Fixed assets have remained approximately the same since 2008, while sales in the same period have gone 4.2x. That is some crazy utilization of assets. Do they outsource some of their production?
If the same cash flow generation trend continues, we could see some build up FCF from here on as the debt has reduced now but further increase in WC intensity could reduce FCF. Also, I do not know how much further they can grow without investing in PPE in fixed assets. That could also lower FCF.
PSS: Just as I posted this I saw your post below. Thank you for sharing the segmented WC charts.