Power, commodity cos show sharp growth.
Vidya Bala
Has economic slowdown taken a toll on the cash churned out by India's leading
companies?
Are more companies reporting negative cash flows as a result of longer working
capital cycles?
An analysis of the latest annual reports for the BSE 200 companies
(representing 84 per cent of overall market capitalisation) reveals no cause
for worry on this front.
First, the number of companies reporting negative cash from operations hasn't
significantly increased in 2007-08.
Only one in every six companies in the BSE 200 (excluding banks) reported
negative operating cash flows, much the same number as in 2007 and 2006.
Two, overall cash flows for the universe, at Rs.1.6 lakh crore for 2007-08,
haven't varied much over a three-year period. Some believe cash flows to be a
better metric than net profits for gauging a company's financial performance as
they capture the results of operations shorn of attempts at window dressing
arising from higher receivables (sales not converted into cash) or inventory
held.
Growth in cash flows
ONGC, Bharti Airtel, Reliance Industries and NTPC top the list of companies
which generated the highest cash flows from operations in 2007-08.
IT majors such as Infosys and TCS and FMCG players such as ITC also figured,
not surprising given the high margins and low leverage characterising these
businesses. However, not all of the top cash generators have seen significant
growths in their operating cash flows in 2007-08.
'Power' show
Companies from sectors such as commodities, power generation and power
equipment are the ones to show a sharp improvement in operating cash flows this
year.
Tata Power, Jaiprakash Hydro Power and NTPC have increased operating cash flows
two- to three-fold, on the back of newly commissioned capacities. Power
equipment companies such as Areva T&D, Crompton Greaves and Alstom Projects
also saw higher cash flows, a positive sign at a time when the working capital
cycle for a good number of companies has been elongating. A boom in commodity
prices seems to have aided cash flows for metal and mineral companies such as
Tata Steel, SAIL, Sesa Goa and Gujarat Mineral Development Corporation.
Why cash flows matter
At the other end of the spectrum, infrastructure and real estate companies
continue to languish in the list of companies with negative operating cash
flows, along with the ubiquitous oil marketing companies. Longer credit periods
and higher inventory levels seem to have taken a toll in the former case.
Healthy cash flows from operations assume significance in the current slowdown
for two reasons.
One, healthy cash flows can help a company meet its funding requirements
internally in a high borrowing cost environment. Two, a company's ability to
manage its debtor and inventory levels indicates the strength of the business,
in a slowdown. In this regard, the top 200 companies in India might not have
too much to worry about.
http://www.thehindubusinessline.com/2008/09/29/stories/2008092951770100.htm
An economist is a man who states the obvious in terms of the incomprehensible.
-- Alfred A. Knopf
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