Engineering sector analysis

Engineering and Manufacturing Sector

Cash Conversion Cycle

The cash conversion cycle (CCC) is a metric that expresses the time (measured in days) it takes for a company to convert its investments in inventory and other resources into cash flows from sales.

Also called the Net Operating Cycle or simply Cash Cycle, CCC attempts to measure how long each net input dollar is tied up in the production and sales process before it gets converted into cash received.

CCC is one of several quantitative measures that helps evaluate the efficiency of a company's operations and management. 

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Bharat Electronics

The CCC of BEL is very high as the kind of projects it is involved in. BEL is a state owned company which is primarily involved in govt. Related R&D projects and also works on projects in collaboration with organisations like DRDO, IISC etc., therefore the incubation time of the projects is higher. Also it is involved in  the Defense and aerospace projects which involve longer inventory keeping as the final product is made in collaboration with several other organisations and involves high frequency of testing.

Since most of the projects are financed by the government and are related to government, therefore the receivables period is also higher. 

L&T

Management has changed tack. It has sharpened focus on RoE/cash flow, reflected in its exit from non-core businesses/working capital control (INR90bn assets sold/monetised over the past three years). And, most of them were at premium valuations.

L&T’s business is comprised of 48% of infrastructure 

A low value of cash conversion cycle is normal in the infrastructure business, where payments from customers are received much quicker than receivables paid to suppliers.

Bosch India Limited

In India, Bosch is a leading supplier of technology and services in the areas of Mobility Solutions, Industrial Technology, Consumer Goods, and Energy and Building Technology. 

One of the Strategic focus points from the “We are Bosch” statement is efficient processes, lean structure, high productivity, secure and increase in value of the Company. Bosch had also been adjudged the Winner in 3 categories organized by CII on “Lean implementation at Value streams” in Bengaluru in May 2018.

The operating segment consists of “Mobility Business” (Automotive Products) -84.8% and “Business beyond mobility” (Others)- 15.2%.

The Automotive Aftermarket industry is on a slowdown, causing the cash conversion cycle to increase.

Honeywell Automation Private Limited

Honeywell provides integrated automation and software solutions. Honeywell has a very small inventory period and a large account payables period. Hence, Honeywell have a negative conversion cycle which is a good thing for the company which implies that the company does not need to have extra cash for paying the suppliers. 

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