In This Article:
Bharat Road Network Limited (NSEI:BRNL) is a small-cap stock with a market capitalization of IN₨14.94B. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? Since BRNL is loss-making right now, it’s essential to understand the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. Nevertheless, this commentary is still very high-level, so I suggest you dig deeper yourself into BRNL here.
Does BRNL generate enough cash through operations?
BRNL’s debt levels have fallen from IN₨8.89B to IN₨5.72B over the last 12 months , which is made up of current and long term debt. With this debt repayment, BRNL’s cash and short-term investments stands at IN₨279.53M , ready to deploy into the business. Moving onto cash from operations, 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 assess some of BRNL’s operating efficiency ratios such as ROA here.
Can BRNL meet its short-term obligations with the cash in hand?
Looking at BRNL’s most recent IN₨770.19M liabilities, the company has not maintained a sufficient level of current assets to meet its obligations, with the current ratio last standing at 0.78x, which is below the prudent industry ratio of 3x.
Does BRNL face the risk of succumbing to its debt-load?
With debt reaching 73.51% of equity, BRNL may be thought of as relatively highly levered. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. But since BRNL is presently loss-making, there’s a question of sustainability of its current operations. 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:
At its current level of cash flow coverage, BRNL has room for improvement to better cushion for events which may require debt repayment. In addition to this, its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. This is only a rough assessment of financial health, and I’m sure BRNL has company-specific issues impacting its capital structure decisions. I recommend you continue to research Bharat Road Network to get a better picture of the stock by looking at: