Thread by @tapak7

Not one #lauruslabs bull speaks or deep dives the balance sheet.

So as someone with no position (past, current or expected in future) in LL I am going to highlight a red flag 🚩 - that's bothering me

A short thread....

It's is the cash & cash equivalents (C&CE) on B/S in context of narrative, that for me, is a BIG🚩. Here r figures

C&CE (cr)
Mar 17 - 4
Mar 18 - 3
Mar 19 - 3
Mar 20 - 2
Sep 20- 2

vs Sales (cr)
Mar 17 - 1900
Mar 18 - 2050
Mar 19 - 2300
Mar 20 - 2850
Sep 20 - 4200 (annualised)

The working capital of #lauruslabs (Inventory + Trade Receivables - Trade Payables):

Sep 2020: 1250 cr
Mar 2020: 1080 cr
Mar 2019: 900 cr

To support its recent & projected growth, JUST THE incremental WC need is almost 1 cr per day !!

It's all fine to say that Operating CFs r being deployed in capex to support growth & hence low. But these are NOT normal low cash levels. Company doesn't even have 2 days of incremental WC cash!!! And it's been this fine for years.

How can a company of the size of #lauruslabs and with it's growth needs even operate confidently with such measly cash on hand?? If it was just one off, it's ok. But every year it's so low. Pls check - even much smaller API / pharma cos (also growing) have higher cash!

& I am not talking about 'extra or safety cash'

McKinsey in their studies had found that cos need about 1-2% of revenues as cash just for operating needs (capex extra).Laurus labs has 0.05 to 0.1% % !!

Forget API/Pharma:

You will NOT find such CONSISTENTLY low C&CE levels (in context of sales /WC) in any good growing company irrespective of size. JUST NOT

What really bothers me (& what any analyst should think deeply about this) is just how this co, year after year, on B/S date, somehow manages to have all post WC cash deployed into Capex

Some skill 2 be able to invest (& pay!) one's profits towards capex, right as they comes in

Auditors sign off on figures for inventory, receivables, trade payables, PPE based on management estimates. Not direct verification

So one can never be sure if these assets r correctly represented and valued on the B/S

But C&CE is never an estimate - it's a precise value. After the Satyam Info episode auditors check this number more diligently.

so as an external analyst the one number on B/S I can rely on isn't giving me confidence at all.

To summarise:

LL has just 2.2 cr C&CE end Sep = just 2 days of incremental WC needs!!

Not just this: it has to payout 42 cr in dividends.

It also has to invest in capex (big jump in capex they announced after results!)

It's clear they will borrow or raise equity. But even cos that do this frequently never run on such low cash perpetually

Why is cash consistently so low? This needs 2 b thought of seriously. I can't find a good reasons - only discomforting conclusions

After my experience tweeting caution on HEG I figured constructive engagement is rare on twitter and fans only troll instead of engaging in useful open minded discussion. Hence thread is closed to comments. If u have a useful counter or comment, DM