I wont get much into the details of result as this is quite talked about and discussed on in social media with friends.
Here is a snapshot from their result presentation.
So, overall in topline and bottomline there is phenomenal growth and on this account company has over delivered on their guidance. Though EBIDTA margin has fallen a bit.
However with the result market got quite spooked and the stock tanked fast with very high volumes. So, what did unnerve the investors? Look at the image below
Short term borrowing and trade receivables has gone up drastically. Which will mean there will be pressure on working capital and will affect the free cash flow of the company. This is a no doubt a concerning sign as this goes completely against company guidance.
Management came up in defense with the following points.
- On debt issue: Debt to equity ratio has gone down from 0.5 levels to 0.32 levsls, which is a good sign.
- On short term Debt issue: “We have sold about Rs 1,850 crore of goods in the last quarter. Now a lot of these goods when you purchased the components for these, these are all Letter of Credit (LC) backed. A lot of these have credit periods ranging from three months to six months. So, when you look at the short term debt all of these LC backed creditors are coming in the short term debt.”
- On trade receivable issue: Management says actually trade receivable days have gone down from about 177 days to about 147 days and they want to bring it down to 100-110 days in next few quarters.
- On free cash flow issues: Management says, any company that is growing in such phenomenal speed cannot have free cash flow, however he expects the growth would slow down due to larger base now and it would come to 20-30% and then they will have substantial free cash flow coming in.
My take on the issue:
Management was quick to come up with defense on every point and the good point is their defense look logical and transparent. However, i hate the fact that the company is time and again negatively surprising the market and investors. Last quarter they did the same thing with lesser topline and management said that they could not deliver in time due to manufacturing bottle neck. Now this time we have host of new issues coming and hitting us on the face.
The difficulty in taking a call is, when a company is growing and winning order in such a speed, some issues here and there are bound to happen, so i believe in this case we would give a benefit of doubt to the company and hold on for another quarter. However we will keep close watch on it and sell out quickly at a hint of any problem. If the same issues or new issues crop up next quarter too, we will take no time to sell out.
So, hold advised, no new investment advised.
Link to management interaction: http://www.moneycontrol.com/news/results-boardroom/plan-to-bring-down-average-collection-days-to-110-inox_6563241.html
Link to investor presentation: http://corporates.bseindia.com/xml-data/corpfiling/AttachLive/C57BD75F_3CCA_4251_B67E_9ECE8E6747FD_165458.pdf