you have rightly pointed out the issue here, the company’s debtor days is increasing every year. that simply means this company doesn’t have the pricing power, and its payment is much delayed and the kind of project this company is entering into gives payment after the completion of the project.
But the issue is with B2B businesses that hire sub-contractors or suppliers they usually don’t delay payment if the product has MOAT. I will try to state an example here, if I’m L&T and I have an airport project. Generally, I will buy the lighting and pay the supplier and invest my money in the project. but with Focus the case turns out that the contractor partner aren’t paying them upfront. and FOCUS’s capital is invested until the project payment is received from the client (mostly Govt).
If you will look at the CFO/EBIDTA ratio of the company it is 0.12 that means for every sale of 100 rupees they are able to get only 12 reflected in their accounts as immediate profit. this small problem here discourages me to invest in it. despite architectural lighting being a good business.
in the recent months the stock price decline could be because of the early investors exiting the company provided they have identified this problematic area. And a company with such dilapidated cash flow is only 1 COVID away from becoming a bad company.
I am not at all saying that this company will not grow. but I will not take it as a great investment.
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