Hi all, this is my first post here. I hope I am compliant with all the rules for posting.
Has anyone been following Indian Terrain lately? The company has done very well in recent quarters. However, while going through their Annual Report for 2014-15, I noticed that accounts receivables have been piling up humongously in the last three financial years. In fact, the Accounts Receivable for FY 2014-15, at 95 crore, is now almost 30% of the total annual revenue of the company, which stands at 290 crore!
That means a full 1/3 of the revenue is not even coming in as cash but is ‘expected’ to come in. That naturally means that the profit figure of ~18 crore for the last year does not even fully exist, as it presupposes that these accounts receivables would translate into cash sometime down the line. Normally, I am not too worried about this, but the issue is that while FY 13-14 to FY 14-15 saw an increase in sales by 58 crore, the accounts receivables went up by 18 crore. Again, a full 30% of the increased sales have not been received in cash.
I thought this was extremely strange as people going to Indian Terrain stores would obviously be paying upfront for the product. If at all, the only explanation I can think of is that franchisee stores are not paying the company. I don’t see why this would happen, as the company would surely have some arrangement to not give their franchisees inventory without any payment or why they would continue having these franchisees when they’re not giving their due to the company. Now the question remains, a lot of franchisees would have to be screwing up in order for 90 crores of receivables to pile up.
So, keeping this in mind, I wrote to the CFO / Company Secretary J Manikandan. I received no response to my email, therefore I sent a physical hard copy of the email to his office address. It was delivered and received but I received no response again. The portion of my email dealing with this aspect is detailed below (for hard numbers):
Under the “Assets” head of the Company’s latest Balance Sheet, Item No. 2 pertains to “Current Assets”. Thereunder, it is stated that “Trade Receivables” have increased from INR 77.11 crore on 31 March 2014 to 95.62 crore on 31 March 2015. A further look a Note 16 which specifies details of Current Assets shows that “Others” has increased from INR 71.23 crore on 31 March 2014 to INR 91.04 crore on 31 March 2015.
A perusal of previous Annual Reports evidences that this is a trend that has been accelerating over the last three years. The AR 2013-14 shows that trade receivables of the “Other” category have increased from INR 61.80 crore on 31 March 2013 to INR 71.23 crore on 31 March 2014. The AR 2012-13 shows that the same has increased from INR 56.26 crore on 31 March 2013 to INR 61.03 crore on 31 March 2013.
Therefore, the increase in trade receivables of the “Other” category increased by 8.4% in FY 2012-13, 15.20% in FY 2013-14 and 27.80% in FY 2014-15. Further, this increase of INR 19.81 crore in FY 2014-15 is more than the entire net profit after tax of the Company, which stands at INR 17.98 crore.
In this regard, please clarify what this “Others” category represents? Whether the Company is having issues with recovering dues from its customers? If it is assumed that the Company only operates self-owned stores and sales are made on cash basis to customers, why has Accounts Receivables been increasing at such an accelerated rate?
Anyone as any thoughts on this? Is this normal for garment retailing companies?
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