This is like management telling the shareholders:
a) that they took big decisions like investing in new P&M in India to cater to US market, without doing detailed homework.
b) Now that there is substantial price erosion faced by the Co, in US market, the new capacity will never be fully utilized and if not written off partly/substantially, the depreciation hit would be a major drag on the Co.’s P&L, going forward.
c) hence, the management prefers to bite the bullet in the FY 2022-23, by writing off Rs. 1150 cr worth of CWIP.
d) for maintaining an optical illusion, this write-off would be done by reducing the balance in the General Reserve rather than the FY 2022-23 PBT.
Big question here is how detailed was the management’s homework before taking the investment decision? Had they sought the opinion of US based pharma consultants or not?
Disc.: Was invested for over 4 years, but sold off after reading the doom & gloom in management commentary post Q1 FY 2022-23 results.
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