Financial Daily from THE HINDU group of publications
Saturday, Aug 10, 2002
Debtor days down for software cos No indicator of recovery, say analysts
CHENNAI, Aug. 9
DEBTOR days a ratio of receivables to sales have come down for the software industry. In the case of some companies, the reduction is considerable.
One inference from this is that in proportion to increasing revenues, many companies have been able to make their customers pay faster for services rendered.
However, the turnaround does not seem to have been sudden. Compare the debtor days for the quarter ended March 2002 with that ended March 2001 and you find a similar change. For Wipro Tech it had come down from 62 to 57 and for Satyam, it had slumped from 87 to 78.
But better collections need not necessarily mean that clients have more dispensable cash and are hence willing to place more orders. According to analysts, that is only one sign that signals hope for the industry and may not be adequate as a harbinger of change.
These numbers alone may not indicate a recovery, they say. Mr V. Shekhar Avasthy, Assistant Manager at the software and services research division at IDC India, says, ``firstly, project cycles can be anywhere between 6 and 36 months. Typically, the payments are linked to milestones. The effect of a good quarter gets reflected 2 to 3 quarters down the line. In tough times, people are more aggressive in collecting money to meet targets. In fact, debtor days for Infosys have remained nearly constant, that for Wipro and Satyam have decreased by a good 10 days.
``It means that their good performance was to some extent due to better recovery rather than more orders! It means that developers are so desperate to achieve targets that rather than roping in new business, they are focusing on collections from existing clients. This is a pointer to the fact that Q1 was not so good actually.''
Says Mr Bhupinder Ahuja, an analyst with Deutsche Securities, ``the fact that the debtor days situation has improved is a good sign. But we have to remember that there has been a focus on tightening receivables over the last year and the focus increased a bit more as there are growing concerns about the financial position of some clients. So, this became a priority area.''
Industry watchers point out companies have also been increasingly recognising and providing for doubtful debts. Infosys, a few quarters ago, had announced that all debts outstanding for over 180 days would be provided for.
Among the top three, Infosys has seen a slump in amounts provided for doubtful debts. For the quarter ended June 2002, it had provisions to a tune of Rs 15.4 crore as compared to Rs 23.08 crore in June 2001.
However, Satyam with Rs 53.11 crore (Rs 17.76 crore) and Wipro with Rs 54.7 crore (Rs 38 crore) have shown a marked increase in provisions for such debts.
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