I think it may change the situation and make it more favourable. But I have some doubts on that.
- Many of its receivables are from the state government side eg. APGENCO. State governments seem to be more lousy is giving dues. Only central government being committed to paying on time won’t solve all of the company’s problems.
- It’s share of contracts in India are going to increase in coming years as said by management in comparison to contracts outside India. I guess most of them will be from the government and that includes both centre as well as state governments. One time payment doesn’t mean that they will get their dues in future on time. Also, dealing with governments creates many more problems than just unrecovered dues.
- We do not know whether this company will receive their outstanding dues. Government deals with thousands of entities across various verticals. I don’t know which entities will get paid first and when will they get paid, even if government walks the talk(there is a chance that they might not).
If the company can receive its payments on time and on a consistent basis, then I think that this company can be a great opportunity for wealth creation. Otherwise, even their current mammoth 10000 Cr order book might not generate wealth for shareholders.
I think that the problem is that this company is a B2G(Business to Government) business. If their order book had exposure with private businesses in India as well as abroad such that it was the majority of the order book, then it may generate some good cashflows. Otherwise, they will just need more debt for their working capital and expenses( due to lack of cash and piling receivables) while simultaneously losing the cash and profits they generate to interest payments of that debt while their money is stuck in receivables.( which is likely what happened in the last decade of their operations).