Trade receivable Analysis of Polycab India

Welcome to the blog, today we will discuss the Trade receivable of Polycab India Limited

So let’s begin,

What is Trade receivables?

Trade receivables are the amounts a company is owed by its customers for goods or services delivered but not yet paid for.

It's like a "money to be collected" list from buyers, usually recorded as accounts receivable in the balance sheet.

The company has maintained a consistent receivable policy. The growth of receivables is increased a little bit with revenue growth.

The company has witnessed higher growth in revenue as compared to receivables, due to which the receivables days have been reduced from 60 days in FY20 to 41 Days in FY24.

The receivable turnover has been improved from 6.4x in FY20 to 11.0x in FY24.

Based on my research, the peers in the industry have median receivable days of 64, slightly higher than the company's receivable days of 41.

However, We noticed that the company's receivables are better as compared to close peers which have average receivable days of 62.

Out of the total reported receivables in FY24 ~63% is not due, and ~25% is due for less than 6 months.

Company Policy on Receivable:

Considering the overall credit risk management of the company, the receivable is not at significant risk of impairment.

The Group follows a strict policy of working only with customers who have good credit ratings. It continuously monitors the creditworthiness of these customers, sets credit limits, and approves credit terms to manage risk.

To account for potential losses, the Group uses the Expected Credit Loss (ECL) model under Ind AS 109. This model is based on historical data, such as payment delays and defaults, along with management estimates.

Some trade receivables are sold to banks without recourse, meaning the Group transfers all risks and benefits, and these are removed from its accounts.

In other cases, receivables are sold with recourse, where the Group retains risks, and these remain on the books, with the cash received recorded as a liability.

Source: Annual Report 2024

Management Commentary:-

If you see a 64% growth in Receivable as compare to last year, little more faster then Sales but overall just 11.35% receivable of the total sales in 2024.

Change in Business Mix:

This year, the company has expanded more into EPC (Engineering, Procurement, and Construction)  and Institutional business.

These kind of clients don’t use quick payment method like channel financing, so it takes longer to collect money. This is one reason for the increase in receivables.

Higher Inventory Levels:

The Company Stocked up on raw material and finished goods, expecting higher demand. But due to copper price changes and a slowdown in demand, they couldn’t sell it as quickly.

This extra stock has tied up cash, adding pressure on receivables.

More Sales to EPC and Institutional Clients:

Since these clients generally pay on a longer cycle, receivables increase as more of the company’s sales are going to these types of customers.

Street Estimations-

Basis out Research, the many analyst expect that the Polycab India’s trade Receivable will be Median of 40-41 all Report

but the management is expecting the receivable day should be closer to 30 in next few years.

Overall as per analysis, the company want to reduce more receivables from their books and from these peers.

Thank you for reading

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