Cox & Kings’ business model offers clues to bond default
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Synopsis
There has been a pronounced increase in receivables as a standalone entity.
In the past four years, there has been a pronounced increase in receivables as a standalone entity. According to Capitaline, Cox & Kings receivables have jumped more than two times to Rs 2,031.3 crore in FY19 from Rs 952.6 crore in FY16. Receivable days have increased two times to 269 days in FY19 from 122 days in FY16.
“Why does a company, which is into the travel business, have such high receivables?” asked a chartered accountant on the condition of anonymity. Cox & Kings and one of the partners of DTS & Associates (the auditor) didn’t answer ET’s queries.
Receivables are the sums of money clients or customers owe to a company. Typically, receivables are high in a sector that is commoditised in nature. To push sales, a producer gives more relaxed payment terms to clients.
On a consolidated level, accounting experts believe the company’s investments in its subsidiaries have not been profitable enough.
The data showed that 37 per cent of its subsidiaries that have reported earnings are making losses. In the past five years ending FY18, according to the company’s annual report, loans and advances to subsidiaries have jumped to Rs 1,464 crore in FY18 from Rs 468.5 crore in FY14. Also, investments in overseas subsidiaries have jumped to Rs 220 crore in FY18 from Rs 115 crore in FY13.
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Another chartered accountant, who did not wish to be named, said: “It looks like the company is borrowing money (short-term loans) on the strength of its standalone business and investing in overseas subsidiaries as equity. This is creating a cashflow mismatch for the company.”
If a company borrows short-term to invest in its overseas subsidiaries as equity, its dependence on its standalone operations becomes very high. It must generate enough revenues to service the interest on shortterm loans as its investments in overseas subsidiaries as equity would take long to yield adequate returns.