TT Limited (NSEI:TTL) is a small-cap stock with a market capitalization of ₹2.24B. 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? Given that TTL is not presently profitable, 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. Nevertheless, I know these factors are very high-level, so I’d encourage you to dig deeper yourself into TTL here.
Does TTL generate enough cash through operations?
TTL’s debt level has been constant at around ₹3,142.7M over the previous year comprising of short- and long-term debt. At this stable level of debt, TTL’s cash and short-term investments stands at ₹15.2M for investing into the business. Additionally, TTL has produced cash from operations of ₹164.8M over the same time period, resulting in an operating cash to total debt ratio of 5.25%, indicating that TTL’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 unprofitable companies since metrics such as return on asset (ROA) requires positive earnings. In TTL’s case, it is able to generate 0.05x cash from its debt capital.
Can TTL pay its short-term liabilities?
At the current liabilities level of ₹1,759.9M liabilities, it seems that the business has not maintained a sufficient level of current assets to meet its obligations, with the current ratio last standing at 0.96x, which is below the prudent industry ratio of 3x.
Does TTL face the risk of succumbing to its debt-load?
With total debt exceeding equities, TTL is considered a highly levered company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. Though, since TTL is currently unprofitable, sustainability of its current state of operations becomes a concern. 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:
Are you a shareholder? With a high level of debt on its balance sheet, TTL could still be in a financially strong position if its cash flow also stacked up. However, this isn’t the case, and there’s room for TTL to increase its operational efficiency. In addition to this, the company may struggle to meet its near term liabilities should an adverse event occur. In the future, TTL’s financial situation may change. I recommend researching market expectations for TTL’s future growth on our free analysis platform.