all of what you are saying is true - inspite of this being a big position for me, I shall say this again - this is the kind of business where cash has to be continuosly ploughed in for growth as they hold inventory. if they can work around that and palm this off to frnachisees/reduce WC days, it will generate FCF's - FCFs are what count for a shareholder., The issue is that this businesss linearly needs capital in consonance with topline growth (may be even more). IMHO, a more enduring moat comes from BS related efficiencies like asset turns, WC days and reducing capital deployed than from margins. Increasing amounts of capital locked in WC increase probability of black swans - obsolescence, write-offs, bad debts etc. -
Look at madura garments ROCE - its 70% and their WC is much better. ITFL is somewhere inbeween an arvind and a madura garments (part of ab nuvo). It's a good business but we just have to be cognizant of the cash flow issue here.
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