Jatin/Dhanwil/Gyan/Mallikarjun,
Thanks for reviewing the results here. There are quite a few things that are unclear to me, that I want to clarify with the management. The management is very friendly and is willing to answer very specific questions. It’d be great if we all could work on the questions together here.
Mine are as follows:
(1) About the P&L – Things which took a toll on the profits are as follows:
(a) 2 Cr added cost of materials consumed. Out of which they have indicated 1.5 Cr was because of recent rupee depreciation. What is their forex cover? Do we expect to see this item the next quarter as well?
(b) 10 Cr additional purchases of outsourced stock. Some portion of this could have also been attributable to the above 1.5 Cr depreciation note.
© Inventory accumulation impact was around 10 Cr. 7.5 Cr clearance of inventory last year vs 2.5 Cr accumulation of inventory this year. Not being an accountant I fail to understand why this comes under expenses and P&L. I used to think this comes under cash flow and balance sheet.
(d) Depreciation increased by 1 Cr. Power costs increased by 2 Cr. This might indicate management has added new capacity and is not fully utilized yet. Need to confirm.
(e) Other expenses increased by 10 Cr (or 30%); How much of this is attributable to ad-spend?
Overall if we add back the 1.5 Cr (depreciation) + 10 Cr (inventory) + 1 Cr (depreciation) + 10 Cr (ad spend), we get a Profit Before Tax increase of over 100%, and picture looks super optimistic.
Of-course the challenge then is to figure out which of these additional expenses are healthy and which are toxic.
Do you guys have any specific comments on each of the above points?
(2) About the balance sheet – Balance sheet degradations are very real, as pointed out by Gyan Roy. Specifically it’s fishy that last quarter the company has not attached the balance sheet. We need convincing explanations for the following:
(a) 20 Cr increase in long term provisions & 5 Cr increase in short term provisions. Quite alarming.
(b) 20 Cr increase in long term loans and advances.
©Trade receivable at 88 Cr is much higher than trade payable at 26 Cr. Paying in cash to buy the products, but not able to recover that in timely fashion from Dealers/retailers?
Really appreciate clarifications or alternate interpretations here. Please add any other queries you might have.
Thanks,
-Prasanna