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Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like Havells India Limited (NSE:HAVELLS), with a market cap of ₹421.26b, are often out of the spotlight. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. Let’s take a look at HAVELLS’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into HAVELLS here.
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How does HAVELLS’s operating cash flow stack up against its debt?
Over the past year, HAVELLS has reduced its debt from ₹2.08b to ₹1.15b , which comprises of short- and long-term debt. With this debt payback, HAVELLS’s cash and short-term investments stands at ₹15.07b for investing into the business. Additionally, HAVELLS has produced cash from operations of ₹10.99b over the same time period, leading to an operating cash to total debt ratio of 953%, signalling that HAVELLS’s current level of operating cash is high enough to cover debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In HAVELLS’s case, it is able to generate 9.53x cash from its debt capital.
Can HAVELLS pay its short-term liabilities?
At the current liabilities level of ₹25.30b 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 1.47x. For Electrical companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too capital in low return investments.
Can HAVELLS service its debt comfortably?
With debt at 3.1% of equity, HAVELLS may be thought of as having low leverage. This range is considered safe as HAVELLS is not taking on too much debt obligation, which can be restrictive and risky for equity-holders.
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HAVELLS’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. In addition to this, the company exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I’m sure HAVELLS has company-specific issues impacting its capital structure decisions. You should continue to research Havells India to get a more holistic view of the stock by looking at: