While small-cap stocks, such as Xpro India Limited (NSEI:XPROINDIA) with its market cap of ₹636.16M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Given that XPROINDIA is not presently profitable, it’s essential to understand the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. Though, I know these factors are very high-level, so I’d encourage you to dig deeper yourself into XPROINDIA here.
Does XPROINDIA generate an acceptable amount of cash through operations?
XPROINDIA has built up its total debt levels in the last twelve months, from ₹1,807.0M to ₹1,970.7M – this includes both the current and long-term debt. With this growth in debt, the current cash and short-term investment levels stands at ₹81.8M for investing into the business. Additionally, XPROINDIA has generated cash from operations of ₹191.8M over the same time period, leading to an operating cash to total debt ratio of 9.73%, signalling that XPROINDIA’s operating cash is not sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency for unprofitable businesses as traditional metrics such as return on asset (ROA) requires positive earnings. In XPROINDIA’s case, it is able to generate 0.1x cash from its debt capital.
Can XPROINDIA pay its short-term liabilities?
At the current liabilities level of ₹1,315.7M liabilities, it appears that the company is not able to meet these obligations given the level of current assets of ₹1,112.3M, with a current ratio of 0.85x below the prudent level of 3x.
Does XPROINDIA face the risk of succumbing to its debt-load?
Since total debt levels have outpaced equities, XPROINDIA is a highly leveraged company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. But since XPROINDIA is currently loss-making, 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:
XPROINDIA’s high debt level indicates room for improvement. Furthermore, its cash flow coverage of less than a quarter of debt means that operating efficiency could also be an issue. In addition to this, the company may not be able to pay all of its upcoming liabilities from its current short-term assets. This is only a rough assessment of financial health, and I’m sure XPROINDIA has company-specific issues impacting its capital structure decisions. I recommend you continue to research Xpro India to get a more holistic view of the stock by looking at: