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Tuesday, Nov 12, 2002

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Debtor days mixed in Sept quarter

Bharat Kumar

CHENNAI, Nov. 11

REVENUES are doubtless an important indicator of the state of the business. But, if you have customers who just relish placing orders but will not pay up enough or on time, it's not much fun.

A debtor day is a ratio of receivables to sales. For companies in the IT software industry, debtor day figures for the quarter ended September 2002 indicate that for some companies, debtor days have actually increased. Infosys, Mascot and MphasiS are the exceptions in the table here - their debtor days have fallen between the June and September quarters.

For most companies in the industry, revenues have grown quarter on quarter and year on year. However, if debtor days have also increased, it means that receivables have increased more than proportionately as compared to sales. (Some companies give annualised figures, as in the case of Polaris. But, between quarters for a particular company, comparisons are among apples.)

Some industry watchers feel that a slight increase in debtor days between quarters does not amount to much and say, "it's really nothing to worry about".

Competition has been heating up among players. Analysts feel that this, in addition to pushing down billing rates, has also resulted in longer credit periods. So, they feel, this reflection in the debtor days is normal.

However, there are a couple of blips to be noted here. In the table, debtor days have actually dipped a bit for some companies in the June quarter compared to the March quarter.

So what is it that has happened — that has resulted in a rise in debtor days June to September? Secondly, even allowing for small increases in debtor days, if the trend sustains over a few more quarters, it could impact the cash flow of a company. If a company expects, say Rs 100 from a customer, it can only net say, Rs 98 due to a delayed payment.

This is due to the opportunity cost of not being able to invest those funds early enough. As a result, the `other income' of the company could also be hit.

Significantly, some companies have cited a slumping `other income' while explaining the lack of healthy growth in net profits, for the quarter ended September 2002. This slump in `other income' has predominantly been due to a strengthening rupee and to sales and marketing expenses going up, in general.

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