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Investors are always looking for growth in small-cap stocks like Kaushalya Infrastructure Development Corporation Limited (NSEI:KAUSHALYA), with a market cap of ₹70.99M. However, an important fact which most ignore is: how financially healthy is the business? Given that KAUSHALYA is not presently profitable, it’s vital to understand the current state of its operations and pathway to profitability. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, given that I have not delve into the company-specifics, I’d encourage you to dig deeper yourself into KAUSHALYA here.
How does KAUSHALYA’s operating cash flow stack up against its debt?
Over the past year, KAUSHALYA has maintained its debt levels at around ₹625.01M comprising of short- and long-term debt. At this current level of debt, KAUSHALYA’s cash and short-term investments stands at ₹3.70M , ready to deploy into the business. Moreover, KAUSHALYA has generated cash from operations of ₹15.94M in the last twelve months, resulting in an operating cash to total debt ratio of 2.55%, signalling that KAUSHALYA’s current level of operating cash is not high enough to cover debt. This ratio can also be interpreted as a measure of efficiency for loss making companies since metrics such as return on asset (ROA) requires positive earnings. In KAUSHALYA’s case, it is able to generate 0.025x cash from its debt capital.
Can KAUSHALYA pay its short-term liabilities?
With current liabilities at ₹929.80M, it appears that the company is not able to meet these obligations given the level of current assets of ₹429.92M, with a current ratio of 0.46x below the prudent level of 3x.
Is KAUSHALYA’s debt level acceptable?
Since total debt levels have outpaced equities, KAUSHALYA 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 KAUSHALYA is presently 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:
KAUSHALYA’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, its lack of liquidity raises questions over current asset management practices for the small-cap. I admit this is a fairly basic analysis for KAUSHALYA’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Kaushalya Infrastructure Development to get a better picture of the stock by looking at: