In This Article:
Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as DLF Limited (NSE:DLF) with a market-capitalization of ₹316.90b, rarely draw their attention. While they are less talked about as an investment category, mid-cap risk-adjusted returns have generally been better than more commonly focused stocks that fall into the small- or large-cap categories. Let’s take a look at DLF’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into DLF here.
See our latest analysis for DLF
Does DLF produce enough cash relative to debt?
DLF’s debt levels have fallen from ₹266.63b to ₹144.61b over the last 12 months , which is made up of current and long term debt. With this debt payback, the current cash and short-term investment levels stands at ₹26.84b for investing into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. For this article’s sake, I won’t be looking at this today, but you can assess some of DLF’s operating efficiency ratios such as ROA here.
Can DLF meet its short-term obligations with the cash in hand?
At the current liabilities level of ₹286.88b liabilities, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.11x. Generally, for Real Estate companies, this is a reasonable ratio since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is DLF’s debt level acceptable?
With debt reaching 47.9% of equity, DLF may be thought of as relatively highly levered. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can test if DLF’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For DLF, the ratio of 0.5x suggests that interest is not strongly covered, which means that debtors may be less inclined to loan the company more money, reducing its headroom for growth through debt.
Next Steps:
DLF’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company will be able to pay all of its upcoming liabilities from its current short-term assets. Keep in mind I haven’t considered other factors such as how DLF has been performing in the past. I suggest you continue to research DLF to get a more holistic view of the stock by looking at: