Plan to bring down average collection days to 110: INOX

INOX Wind's consolidated total income for the fourth quarter was up 96.6 percent at Rs 1,828.7 crore against Rs 930 crore on a year-on-year basis.Explaining the numbers, Devansh Jain, the wholetime director of the company, said the average collection period of debtors stands reduced by 30 days. The number of average collection days (ACD) is also down to 140 from 170 days."Our aim is to bring the ACD down to 110 over the next two quarters," he said.The company is also hoping to reduce its turbines its receivables as more turbines are delivered.  Jain is hopeful that there will be substantial free cash flows over the course of FY17. "Expect a healthy 20-30 percent growth going forward," he said.

Below is the verbatim transcript of Devansh Jain’s interview with CNBC-TV18's Sonia Shenoy and Anuj Singhal.Anuj: I am sure you have seen the market reaction to your numbers. You had guided for your debtor days to come down. They have gone up. What happened. How should the market believe that going forward they can trust your guidance on cutting down the debtor days?A: There is a misconception. To some extent what has not been clarified or what has not been understood and as soon as our investor presentation which has been uploaded now is in the hands of the investors this would be made clear. Our average Area Clearing Prices (ACP) of debtors has gone down, from about 170 odd days to about 140 days. So, we have had a 30 day reduction over this quarter. The overall working capital cycle has dropped from about 140 days to about 85 days. That is a huge improvement in working capital cycle.Our overall debt to equity ratio has dropped from about 0.5 to about 0.32 in one quarter which is substantial. I understand the market has kind of not understood too well is they have seemed overall absolute sum of receivables. At the end of the day please keep in mind in this last quarter, Q4 we have had almost Rs 1,850 crore of sales. So, the overall receivables being at about Rs 2,400 is if you look at it from an ACP perspective is really one quarter. So, if you look at the whole year 98 percent of our receivables are less than six months old. This will be very clear as soon as the investor presentation is - it was uploaded, there was some technical error. As soon as this is on the stock exchanges this would be made clear.Sonia: But I am reading right out of your P&L that you post on the exchanges a while back. We haven\\'t got the investor presentation because as you said it has just been uploaded. The short term debt of the company has gone up to Rs 1,399 crore precisely versus Rs 767 crore year-on-year (Y-o-Y). So, there is clearly a rise in your short term debt and there is also a rise in your overall debtor days and that is the reason the stock was down. Should we be concerned about that?A: Again, we have sold about Rs 1,850 crore of goods in the last quarter. Now a lot of these goods when you purchased the components for these, these are all Letter of Credit (LC) backed. A lot of these have credit periods ranging from three months to six months. So, when you look at the short term debt all of these LC backed creditors are coming in the short term debt.Obviously as we pay these guys off which are LC backed over the next 3-6 months depending on the credit period these guys provide to us, that will reduce but please do not forget you also have huge receivables to collect against that. And as these turbines get commissioned and executed on the ground please don\\'t forget what we typically sell in a quarter cannot be executed within that quarter. So, if I have sold 300 megawatts of turbines in the last quarter or 400 megawatts of turbines in the last quarter all of it has not been executed, erected, and commissioned in that quarter. A lot of that as a typical one to two quarter backlog.So, what is going to happen if my receivables are 2400 and if the ACP of that is 140 days and the overall 98 percent of our receivables are less than six months old all these receivables start coming in to us as these turbines resides, get delivered, get erected and get commissioned. So, we get this money in, this money is also receivables go down, this money is also used to pay off the debtors which are LC backed debtors. So, both of these reduce automatically. You are getting coloured by the fact that the absolute sum has gone up.So, I will just give you an example. If I was to do Rs 100 crore of sales in a year and Rs 80 crore of that is in Q4 and my receivables are Rs 80 crore you can\\'t tell me that my average collection period is 270 odd days.Sonia: So, can you give us a forecast going ahead, what will your overall debtor days be. Now, in FY16 it is about 200 days, as you give us your ACP days as well, what will it be in the first half of FY17 and what will your trade receivables be in the first half of FY17?A: First of all just to correct your misunderstanding we don\\'t have receivables of 200 days. If you look at it from plain vanilla perspective it is - but that is the wrong way to look at it because if we sold goods in Q4 clearly they are 30-90 days of receivables. They are not 200 days of receivables. And as I shared 98 percent of our receivables are less than six months old. Point number one.Point number two, with respect to forward looking statements, I am not going to make forward looking statements. But yes, like I said we have always been working towards reducing the average collection period. We have gone down from about 177 days to about 147 days. Our aim is to bring this to about 100-110 days. And over the next two to three quarters we should get there.Anuj: What about cash flows, when will we have positive cash flows?A: Again if you look at our overall debt to equity ratio we are at about 0.3. So, we are very comfortable. We are not at all leveraged. As of December it was about 0.5 and this is down to about 0.32 as of March. So, this continues to decline. As I mentioned over the course of this financial year we believe that with declining working capital and increased synchronisation of component supply thanks to the increased manufacturing days we have as well as the increased momentum in project execution we believe we should have substantial free cash flows over the course of this year. Hence I would only tend to think that this would keep declining as we move forward.Sonia: At no point in time will the company turn cash flow negative that is what you are saying right because that is the big concern that this street has at this point?A: I think it is a double edge sword, when you are growing at 65-70 percent and if you look at look our numbers for this year we have grown at about 65 percent. Our topline has grown at about 65 percent, our EBITDA has grown at about 62 percent and profit after tax (PAT) has grown at 55 percent. When you grow so substantially you can’t have free cash flow.We also had a backlog of execution, we also had a blade and tower mis- synchronisation. You are well aware that our Madhya Pradesh (MP) facility has been commissioned so lot of the issues due to less capacity has gone away. The execution momentum has picked up and again we see significant growth going forward. However, yes, I don’t think we will continue growing at 70 percent odd but we see a healthy 20-30 percent growth continuing. I think given that and reduction in working capital cycle we would expect to see substantial free cash flows over this financial year and going forward.Anuj: Is there a risk that this quarter was of course phenomenal but was this the peak earnings quarter and from here on would there be significant adjustment to growth considering that base will also go up?A: Given the fact that the base has gone up, obviously, to that extent there would be an adjustment in terms of growth rates. Having said that I think this year itself the sector has grown at almost 50 percent. We have grown from about Rs 2,400 or 2,500 odd to about Rs 3,500. The government as you know the targets are very ambitious; they are aiming for 60 gigawatts by 2020. Back of the envelope calculations shows that to be about 5-5.50 gigawatts of requirement year on year.I am not sure whether we will hit 5-5.50 in the next one year odd but I still think the sector would continue to see tremendous growth over the next one to two financial years. Clearly, we would take a larger pie of the sector as we move forward.Sonia: Do you think as a whole the government support for the sector is receding because we understand that MP government has reduced its preferential tariff for wind by almost 20 percent? Do you think that unfavourable regulatory developments could hinder your growth process?A: What I have been trying to communicate to many people and I think a lot of people do understand this now the fact that tariffs have gone down in once state is actually a good thing because a tariff of 4.7 or 4.5 the distribution companies are more amenable and are more welcoming to buying more and more renewable energy. At Rs 5.50-6 so on and so forth there is only so much that distribution companies can buy because they perceive it to be expensive power. Because of technological improvements and increasing reduction in the cost of energy, the return of investors continues to remain very robust.For example we are a 93 meter blade which let us say gave 20 percent plant load factor (PLF). Today we sell 113 meter blade which increase efficiency by almost 20 percent. Now the cost of doing that is not 20 percent and a lot of that is going towards compensating states towards reducing tariffs. Now what that will lead to is people having the most up to date technology and being very competitive and that is also reflected in the fact that almost 80 percent of the market is controlled by three players.Those who don’t have up to date technology or those who are not competitive are all withering away. They will not be able to compete in this market. So, with tariffs going down the market size itself is increasing.Anuj: Your presentation is just not getting update on the BSE, what is happening, we want to read what you are saying to quiz you further but it is still not there on the BSE website?A: I will just get this checked but I think it has already been uploaded.Sonia: Last quarter you had made certain promises to investors, to a lot of people who own your stock and today after your numbers we spoke to at least two, three of them and they believe that you have not perhaps lived up to those promises. Would you want to allay any kind of concerns to all the shareholders watching right now that there are no working capital issues that the company has?A: Like I said because people have probably not seen the overall investor presentation and probably people have just looked at the absolute sum there is this concern. Like I mentioned overall the working capital cycle has declined tremendously, the average collection period of receivables has declined substantially. More can be done to improve but with respect to guidances and promises I think we have done far better than what we guided and promised.I think the misconception has come in from the absolute sum. So, unless and until, if people were to understand the facts and I am sure they will as soon as they accessed to presentation and if they understand what I am saying I think a lot of these concerns will go away. It is to some extent un-irrational or un- lack of understanding which is probably leading to this.