GRP Limited (NSE:GRPLTD) is a small-cap stock with a market capitalization of ₹1.59b. 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 GRPLTD is loss-making right now, it’s vital to evaluate 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. Though, I know these factors are very high-level, so I suggest you dig deeper yourself into GRPLTD here.
How much cash does GRPLTD generate through its operations?
GRPLTD’s debt levels have fallen from ₹673.55m to ₹510.95m over the last 12 months , which is made up of current and long term debt. With this reduction in debt, GRPLTD currently has ₹14.52m remaining in cash and short-term investments , ready to deploy into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, 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 take a look at some of GRPLTD’s operating efficiency ratios such as ROA here.
Can GRPLTD pay its short-term liabilities?
Looking at GRPLTD’s most recent ₹773.79m liabilities, it appears that the company has been able to meet these commitments with a current assets level of ₹964.93m, leading to a 1.25x current account ratio. Usually, for Auto Components companies, this is a suitable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is GRPLTD’s debt level acceptable?GRPLTD is a relatively highly levered company with a debt-to-equity of 41.18%. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. But since GRPLTD is currently 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.
At its current level of cash flow coverage, GRPLTD has room for improvement to better cushion for events which may require debt repayment. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. This is only a rough assessment of financial health, and I’m sure GRPLTD has company-specific issues impacting its capital structure decisions. I suggest you continue to research GRP to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for GRPLTD’s future growth? Take a look at our free research report of analyst consensus for GRPLTD’s outlook.
- Historical Performance: What has GRPLTD’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.