Investors are always looking for growth in small-cap stocks like Autoline Industries Limited (NSEI:AUTOIND), with a market cap of ₹1.67B. However, an important fact which most ignore is: how financially healthy is the business? Since AUTOIND is loss-making right now, it’s essential to evaluate the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, given that I have not delve into the company-specifics, I’d encourage you to dig deeper yourself into AUTOIND here.
How does AUTOIND’s operating cash flow stack up against its debt?
AUTOIND’s debt levels surged from ₹1,978.6M to ₹2,194.2M over the last 12 months , which comprises of short- and long-term debt. With this rise in debt, AUTOIND’s cash and short-term investments stands at ₹39.6M , ready to deploy into the business. However, its trivial cash flows from operations make the cash-to-debt ratio less useful to us, though these low levels of cash means that operational efficiency is worth a look. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can examine some of AUTOIND’s operating efficiency ratios such as ROA here.
Can AUTOIND pay its short-term liabilities?
With current liabilities at ₹2,072.3M liabilities, it seems that the business has been able to meet these obligations given the level of current assets of ₹2,395.9M, with a current ratio of 1.16x. Generally, for auto components companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Does AUTOIND face the risk of succumbing to its debt-load?
With total debt exceeding equities, AUTOIND is considered a highly levered company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. But since AUTOIND is currently unprofitable, there’s a question of sustainability of its current operations. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
Next Steps:
Are you a shareholder? AUTOIND’s high debt levels is not met with high cash flow coverage. This leaves room for improvement in terms of debt management and operational efficiency. In addition to this, the company may struggle to meet its near term liabilities should an adverse event occur. Moving forward, its financial position may change. I recommend keeping on top of market expectations for AUTOIND’s future growth on our free analysis platform.