What is a Pipeline?
A pipeline is a term, which refers to prospects or deals lined up to meet the revenue targets of a company. For example, a sales pipeline shows the number of deals lined up for closure in a month, a quarter, or a year. A pipeline also refers to the research and development targets of a pharmaceutical company or acquisition targets for a private equity fund.
Understanding Pipeline
A pipeline is also a measure describing the progress towards a long-term target, which consists of different stages. In a case where the pipeline refers to plans that are lined up or deals that are underway, the status of a pipeline is always disclosed as on a date.
For example, in the case of a pharmaceutical company, the company may disclose that the number of research and development projects in the pipeline as at the end of a quarter.
Another variant of the term ‘pipeline’ refers to ‘conduit’ companies who act as a pipeline for investments and obtaining tax advantages. The conduit remits the returns to the investor entity or their shareholders.
A conduit company is generally set up in a tax jurisdiction, which offers favourable tax treaty network with other countries. The tax jurisdiction may not impose a tax on the conduit due to investment-friendly tax policies.
Certain conduit companies or pipeline companies are exempt from corporate taxes while their investors pay taxes as individuals. The system avoids double taxation of income in the hands of the corporate and taxes on the income distributed to the investor.
In India, certain alternative investment funds are exempt from tax, while their investors are taxed on the income of the fund.
A pipeline may include projects at different levels, which may be securing orders in-progress or completion stage. In private equity deals, the stages may include client negotiations, due diligence, underwriting, applying for regulatory approval, and marketing for an upcoming IPO.
Conclusion
A pipeline shows the work-in-progress of a company showing potential sales for the company in the coming quarters. A huge pipeline shows the financial strength of the company. However, one may also need to analyse the qualitative aspects of the pipeline, such as break-up between government contracts and other contracts. The qualitative analysis provides insights into the financial viability of a company.
