Cranes Software International Ltd, a company that provides enterprise statistical analytics and engineering simulation software products and solutions, is taking action against defaulting clients by cracking down on supplies to these companies. The company has been forced to apply pressure on the receivables’ front thanks to demand from the international markets coming under pressure, coupled with relatively higher expenses this quarter.
Company officials reiterated that product demand continued to be high, but a decision had been taken to curtail supplies to distributors with whom there are continued collection delays. “Primarily, we have curtailed supplies and are now working closely with clients and other stakeholders to formulate timelines to ensure mutual comfort and benefit. This process can at times take a little longer as the sudden and swift changes in the environment have created near-term challenges for us,” officials said.
“We have focused on cleaning up our supply chain and have put in place stringent norms and policies to minimise bad debt and delayed payments, and consequently, enhance efficiency of our operations. In times of uncertainty, it is imperative for us to have a clean and strong balancesheet and halting supplies temporarily has also helped us mitigate cash flow-related risks,” company officials said, without specifying the amount of receivables.
In many cases, Cranes has delayed supplies till definitive processes and agreements are put in place, officials said, adding that the benefits of these measures were already visible. “It would have been much easier to report higher sales growth but this would have also resulted in higher receivables and lower profit margins,” they said.
On the impact of the collection drive on the company’s sales growth and subsequent cash flows, a company official said, “The cleaning up of our supply chain is an initiative that needs to be undertaken periodically. It is enabling us to put in place strong processes and guidelines, and work together through these difficult times with our customers. Going forward, we believe these initiatives will result in a much stronger balancesheet and healthier cash flow generation.”
With current market capitalisation of Rs 1,405 crore, Cranes has successfully completed its strategic acquisition of German business intelligence software company Cubeware last year.
On whether the company’s inorganic growth plans in the year ahead have been affected by the economic downturn, the official said, “Our strategy in relation to acquisitions has always been to fill in technology gaps rather than add to the topline. Although there is no doubt that the current environment will pose several challenges, the (business) space that Cranes operates in is poised for tremendous growth over the long term. Our efforts will relentlessly be focused on engineering simulation and enterprise data analytics software.”
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In line with the slowdown in the macro environment, Cranes’ sales in the third quarter-ended December 31, 2008, posted modest growth of 6 per cent year-on-year, its slowest growth in many years. Net profit after tax was down 15 per cent to Rs 26.73 crore from the same quarter of the previous fiscal, impacted primarily by margin contraction and interest costs which shot up nearly 99 per cent year-on-year.
“Although there has been some impact from the global slowdown which percolates across all businesses, our growth has been subdued also because of internal measures we have taken to strengthen our long-term growth,” a company official said, noting the overall slowdown combined with internal supply chain initiatives have resulted in a more subdued growth across all categories.
“Most of our relationships in the products space are long term and recurring in nature and are with very stable and well-regarded names. This is a near-term challenge and we expect the situation to normalise soon,” the official said.
Sales of proprietary products during the December quarter increased just 8.1 per cent year-on-year. This was in contrast to the September quarter which saw growth rate of 43 per cent yearly.