Gulf Oil Lub’s FY22 receivables jump due to Mar sales surge, says co

9 Jun 2022

The trade receivables of Gulf Oil Lubricants India Ltd at the end of 2021-22 (Apr-Mar) represented a big increase over the year ago level but the company attributed it to the high topline growth during the financial year.

Trade receivables were up sharply by 57% to 3 bln rupees as of Mar 31, data from Informist Corporate Fundamental Database showed. The revenue from operations of the company, which is a leading private player in the domestic lubricants business, rose by 33% on year to 21.9 bln rupees in 2021-22.

Analysts tend to view any significant jump in trade receivable as an indicator of potential liquidity problem,

Manish Gangwal, chief financial officer at Gulf Oil Lubricants, said in a recent conference call with investors and analysts that the full year topline of the company grew by nearly 33% in 2021-22 which increased the receivables overall. Further, March was a “very-very high month” in terms of sales and those were all standing in the trade receivables at the end of the year.

The company’s March quarter net sales of 6.4 bln rupees was 29% of full year sales, the data showed. The revenues for Jan-Mar grew by 24% on year and 6% on quarter.

Given that trade receivables jumped up by 57% while full-year revenues grew by a lower rate of 33%, the March sales surge would have likely been significant.

The company’s clarification on the trade receivables was in response to a query from an analyst on the sudden jump in of high trade receivables. The analyst further pointed to falling cash flows.

The company said it was in control of the working capital and that the trade receivables were “only 5 to 6 days higher” than normal. It said that the buyback it effected in 2021-22 led to a total cash outflow of 1.1 bln rupees.

The company had cash and cash equivalents of 5.7 bln rupees as of March 31, higher than the year-ago level of 5 bln rupees.

Analysts look at trade receivables to turnover ratio of companies to gauge the liquidity position. A rise in the ratio is generally considered as problematic.

In case of Gulf Oil Lubricants, the data showed that that average trade receivables in 2021-22 were nearly 12% of full year revenues and it was significantly up compared to the previous year ratio of 10.1%. The average was calculated as a mean of the Sep 30 and Mar 31 figures provided in the balance sheets as of those two dates.

A rise in operating costs had reined in the company’s growth in earnings before interest, tax, depreciation and amortisation to 3.3 bln rupees in 2021-22 from 3.2 bln rupees in the previous year, while the EBITDA margin contracted sharply to 14.8% from 18.6%.