Monte Carlo results highlights
Positives :-
Sales up 45% YOY (QOQ is not relevant due to seasonality) however such sales growth in non peak quarter exhibits business momentum in non winter products. Company is on track in becoming an all weather apparel company.
Profit before tax up 32% (margin dip, may be they are pushing sales as of now, margins they may focus later on as advertising spends has increased by 50%)
PAT up 55% but that’s because deferred tax credit & earlier years tax adjustments.
Negatives :-
Alarming increase in working capital. Inventories increased from 289 to 460 (up by 171 crores) and trade receivables increased from 259 to 380 (up by 121 crores) a total increase of 292 crores in current assets. This increase in current asset is offset in balance sheet by increase in trade payables by 55 crores, increase in other current liability by 23 crores, reduction in bank balance other than cash by 35 crores and increase in short term borrowings by 139 crores. That’s quite alarming because the increase in working capital is more than even the sales growth which in turn is funded by short term debt and reduction in financial assets. All these resulted in negative cash flow at operating level.
Stock remains cheap as per traditional parameters like PE multiples at P&L level. Will have to wait for concall for these concerns.
Disclosure: one of the major holding in my portfolio. Ready to give more time due still cheap valuations but will track cash flow very critically from here. Any positive improvement related to these concerns may lead to substantial rerating from current levels.
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