Investors are always looking for growth in small-cap stocks like Sathavahana Ispat Limited (NSEI:SATHAISPAT), with a market cap of ₹1.69B. However, an important fact which most ignore is: how financially healthy is the business? Since SATHAISPAT is loss-making right now, it’s crucial to assess the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. However, given that I have not delve into the company-specifics, I suggest you dig deeper yourself into SATHAISPAT here.
Does SATHAISPAT generate an acceptable amount of cash through operations?
SATHAISPAT has sustained its debt level by about ₹6,523.3M over the last 12 months – this includes both the current and long-term debt. At this stable level of debt, the current cash and short-term investment levels stands at ₹899.7M for investing into the business. Additionally, SATHAISPAT has generated cash from operations of ₹1,338.5M during the same period of time, leading to an operating cash to total debt ratio of 20.52%, indicating that SATHAISPAT’s debt is appropriately covered by operating cash. This ratio can also be a sign of operational efficiency for unprofitable businesses since metrics such as return on asset (ROA) requires positive earnings. In SATHAISPAT’s case, it is able to generate 0.21x cash from its debt capital.
Can SATHAISPAT pay its short-term liabilities?
Looking at SATHAISPAT’s most recent ₹9,008.7M liabilities, the company has not been able to meet these commitments with a current assets level of ₹4,727.0M, leading to a 0.52x current account ratio. which is under the appropriate industry ratio of 3x.
Does SATHAISPAT face the risk of succumbing to its debt-load?
SATHAISPAT is a highly-leveraged company with debt exceeding equity by over 100%. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. But since SATHAISPAT is presently loss-making, sustainability of its current state of operations becomes a concern. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
Next Steps:
Are you a shareholder? SATHAISPAT’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 not be able to pay all of its upcoming liabilities from its current short-term assets. Going forward, SATHAISPAT’s financial situation may change. I recommend keeping abreast of market expectations for SATHAISPAT’s future growth on our free analysis platform.