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Friday, Mar 01, 2002

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Of debtor days & revenue graph

Bharat Kumar
Raja Simhan T E

CHENNAI, Feb. 28

``PLEASE! You're committing a cardinal political sin, my boy. You're trying to be fair,'' exclaims the king-maker in Arthur Hailey's In high places, when the leader of the Opposition tries to explain a certain action of the ruling party, instead of seizing the opportune moment to bring the government down.

It is difficult not to see a parallel when software companies plead helplessness or display an aggressive focus when it comes to collections from clients.

Pentamedia Graphics responded to a Business Line questionnaire on the important issues facing a company in these gloomy times, and said: ``The slowdown has affected the payment capability of our debtors, sometimes even reducing some of them to file for bankruptcy or Chapter 11. This is certainly a rude shock to us, and more so when many of our clients merely blame it on the economy slowdown and sport an attitude of apathy.''

And, then, comes the punch line: ``We should not forget that many genuine debtors do forward their heartfelt apologies for defaulting.''

Interestingly, not all companies in the software industry have seen a sudden rise in receivables and hence in debtor days. A look at the debtor days for Indian software companies shows that the ones considered successful on the count of revenue growth are also the ones to have shown a medium to healthy decrease in debtor days.

This is for the quarter ended December 2001 as compared to the same quarter in the previous year. Infosys, Wipro, Satyam and Mastek are four such. Among these, Mastek and Infosys have significantly reduced this count.

Mr Ashank Desai, Chairman and Managing Director, Mastek Ltd, told Business Line: ``Slump in debtor days has been entirely due to our efforts on collections. We have focussed strongly on receivables.'' The company hoped to reduce the current count of 68 to 60 days for the quarter ending March 2002, he added.

IT sector analysts say that growth in sales and change in debtor days could reveal cash flow realities. According to one Mumbai-based analyst, the figures for the above four companies show that not only has debtor days decreased, but sales have risen too.

This could have a positive impact on cash flow. In the case of HCL Technologies and Mascot Systems, there has been a reduction in debtor days, and also a reduction in sales, which means that there is improved cash flow management, but declining sales have had an impact.

In the case of Polaris Software and Pentamedia Graphics, debtor days have increased and there has been a slump in net sales. This could result in a pressure on cash flows, according to analysts.

Asked to comment on debtor day figures, a spokesperson for Polaris said, ``There has not been a significant increase in the debtor days during this quarter. On a business cycle comparison trend, the third quarter has always exhibited a slight increase in the debtor days during the past.''

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Of debtor days & revenue graph

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