Credit Series- Everything looking bad is not always bad.

Take a look at the below numbers. Good, Bad or ugly seeing years 1-3 ?  On face of it, will fall in last two categories on first glance.

preetyweb

There were lot of factors playing at same time in it-

  • Extraordinary income and expenses.
  • Fluctuating sales.
  • High borrowing vs sales.

But also what this company continued doing was investing in

  • Fixed Assets
  • People ( Look at employee cost even though sales had fallen).

Here it was important to understand the non-financial metrices which were in favour of company-

  • World class manufacturing facility.
  • Product required multiple approvals from regulatory bodies as well as business associates.
  • Business associates (customers) were leading industry players and had offtake contracts and long term past association.
  • Problems which led to the bleeding in P & L were clearly identifiable and corrective processes were in place.
  • Ability of the promoters to pump in money if required although was yet to be demonstrated.
  • Happy, dedicated and long vintage employees.

Below is what happened YOY subsequently  in short –

  Year 10 Year 9 Year 8 Year 7 Year 6 Year 5
Short Term A1 A2+ A2 A2 A3 A3
Long Term A A- BBB+ BBB BBB- BBB-

So even though the operating numbers didn’t look good, it was a good credit if you give benefit of above factors the foundation was strong to come out of challenge which it was facing.

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